FTSE 250 engineering and industrial software group Aveva Group (LSE: AVV) is flying after publishing its final results that included a 6.8% rise in adjusted profit before tax to £162.8m and plans to make £25m of cost savings following its merger with Schneider Electric.
Viva Aveva
Revenues rose 8.6% to £704.6m and the share price jumped more than 13%, delighting investors who will have been disappointed by its longer-term performance, with the stock trading just 13.7% higher than five years ago. Aveva completed its reverse takeover of French giant Schneider on 1 March and now it is all systems go.
Chief executive Craig Hayman said: “The integration of the business has begun in earnest to drive top-line synergies.” The planned cost savings should be realised by 2020, while the hook-up is also expected to generate “material revenue synergies over the medium term” and capture the trend towards industry digitalisation.
How much?
My worry is that Aveva now trades at a monster forward valuation of more than 50 times earnings while City analysts are forecasting a 39% drop in earnings per share in the year to 31 March 2019, albeit followed by an 11% rise the year after. Perhaps there is a monster dividend to compensate? Nope. Unless you consider a forecast 1.3% monster-like.
My Foolish colleague Peter Stephens also banged his head against these unappealing numbers, and although today’s results are more than welcome, I remain unconvinced, especially as we don’t yet know what synergies the group can generate. Others clearly feel differently this morning, though.
Brown down
Manchester-based clothing and homeware retailer N Brown Group (LSE: BWNG) is out of vogue, sliding 1.62% after publishing its Q1 trading statement for the 13 weeks to 2 June. Investors are understandably wary with management only able to describe a “satisfactory performance in a challenging period” for fashion retail, while announcing a 0.4% rise in group revenue.
The group also announced it had launched a consultation to consider closing all of its 20 stores, in the latest bad news to hit the high street. However, its stores only account for just 2% of group revenue, with 75% now generated online, rising to 84% for new customers.
Smart work
CEO Angela Spindler was satisfied given strong comparatives and the tough industry backdrop, saying: “We continue at pace our journey to become a global online retailer, uniquely delivering fashion that fits. This will underpin our future growth, both in the UK and internationally.”Â
It is a big prize, for a company with a market cap of £553m, whose brands include the relaunched JD Williams, Simply Be and Jacamo. The stock has fallen 30% in the year but the good news is that it now trades at just 8.6 times earnings. Roland Head reckons its decline has gone too far.
N Brown’s numbers are the reverse of Aveva’s, and look more attractive. Its earnings growth prospects do look sluggish but the yield is glorious at a forecast 7.2%, covered 1.6 times. Closing stores is sad but makes sense amid falling high street footfall. It looks an interesting contrarian opportunity to me.