Viva Aveva!

Aveva, the 3D computer aided design company has had a stellar year and will use some £2 million of its cash to accelerate growth in its very promising VNET business.

Although the expenditure will clearly hit the profit and loss account in the short-term, the market has responded well to the timely investment in a business that chief executive Richard Longdon envisages representing at least 15-20% of the business three years from now.

Shares (AVV) are up 12.5p to 680p, valuing the company at £149 million. Not so surprising considering forecasts for the year to March had already been upgraded twice during the year, and Aveva exceeded even those. We first highlighted the shares in November 2002 at just 274.5p, and have advised holding since then.

Aveva’s core business is in selling its computer-aided design and manufacturing software, primarily to the oil, gas and power industries, and, through the acquisition of Tribon last year, to the marine industry.

VNET is a newer business whose technology enables owner operators of power plants and field engineers to view all of the data associated with a design, including 2D and 3D plans and product data. This is available through a web browser without having to have the underlying design software on their own computers. It therefore enables collaboration during the design phase as well as ongoing maintenance of a plant by individuals who do not necessarily have to have the expensive licences for the design software in order to view the data.

Aveva announced a small acquisition today to bolster the business. It is paying £3.2 million for Realitywave, which provides the necessary streaming technology to enable VNET to work. Longdon said the royalty fees that would otherwise be payable to the company for use of its technology justified the purchase price.

The £2 million investment in VNET will be to both step up research and development and to grow the sales and implementation team. A considerable part of the VNET revenues come from implementation and it is Aveva’s deep knowledge of the business that enables it to add value to the VNET implementations.

Longdon said the company has ‘first mover advantage’ with VNET, and ‘we need to get stuck in’.

Whereas the core business has a major competitor in the shape of Integraph, Longdon reckons VNET does not really have a competitor, although the big systems integrators would like to move into the space.

For the year to March, Aveva grew turnover by a hefty 51% to £57.5 million, of which recurring revenues were up 42% to £32.6 million. Pre-tax profits before exceptionals and goodwill were up 60% to £10.7 million and adjusted earnings per share grew to 36.7p from 26.2p. The company is paying a final dividend of 4.3p making a total for the year of 6.1p up from 5.8p and the company, which was strongly cash generative, ended the year with net cash of £11.2 million, up from £8.7 million.

Longdon said the marine business has done ‘better than expected’. Although it was owned for only part of the year, growth was running at around 20%.

In December, the company entered into a key partnership with Hyundai Heavy Industries, which is collaborating with it to develop the next generation of the marine software, including committing $8 million of development costs. The company is also deploying VNET in what is the first deployment for the marine industry.