Goldman Sachs upgrades Aveva on Schneider deal

Goldman Sachs upgraded Aveva to ‘neutral’ from ‘sell’ and raised the price target to 2,450p from 1,300p following the company’s deal with Schneider Electric.

It noted Aveva’s announcement earlier in the month that it plans to acquire Schneider Electric assets in what will effectively be a reverse takeover and said it was upgrading its rating and price target to balance the accretion it sees possible to Aveva’s standalone earnings per share with end-market headwinds and any near-term disruption from integration.

In addition, Goldman pointed to the fact that since being added to the ‘sell’ list on 3 November, Aveva shares are up 54% versus the FTSE World Europe up 5.8%.

It maintained its view that downside risks to standalone Aveva estimates have not cleared, particularly on the top line, given continuing headwinds in its primary end-market of Oil & Gas.

“While Schneider’s software assets would increase Aveva’s scale and addressable market, our pro forma analysis suggests near-term margins are diluted,” it said.

Goldman said its analysis of incorporating Schneider Software assumes minimal revenue synergies given end-market headwinds.

It noted that Schneider Software management stated it is experiencing delays in order intake and contract start-up especially in projects linked to the oil price, which it expects to continue through to full-year 2016.

However, the bank reckons Aveva would still be able to extract cost synergies through a combination with Schneider Software driven primarily drive by the optimisation of general and administrative expenses.

Incorporating its estimate of potential cost synergies and the new equity issuance, GS forecasts accretion of around 10%- 15% to Aveva EPS beyond full-year 2018 as the full run-rate of cost synergies start to kick in.

At 11:54, Aveva shares were down 0.4% at 2,242p.