Aveva
Price £32.29
52 week high-low £42.42 – £30.64
Net Yield 1.09%
Hist/Pros PER 284.5/31.1
Equity Market Cap (M) £9,886
Information Technology
Peter Herweck, CEO
Aveva has featured in numerous media headlines following some high profile M&A activity. In 2017, Schneider Electric bought 60% of the British software firm and, in turn, handed over their software division to Aveva. More recently, this year, Aveva acquired Silicon Valley software firm OSIsoft for $5bn. The focus of our meeting with CEO Peter Herweck was to garner a more complete picture of this integrated business in the aftermath of these transactions.
Aveva’s growth strategy has focussed on cross-selling products to their existing customer base and developing their cloud platform, Aveva Flex, has greatly facilitated this. Additionally, with the OSIsoft purchase, Aveva acquired “the best customer success management team”. This team’s focus is to assist customers to best utilise the full Aveva product suite. It is Peter’s belief that hands-on customer service is vital to customer retention and expanding product use.
Management see Aveva’s software as vital to the energy transition. Roughly 35% of Aveva’s revenue derives from the Energy sector. Their software seeks to drive operational efficiencies and value chain optimisations which will help reduce CO2 emissions in the Oil & Gas sector. Additionally, management see the trend towards electrification as working in their favour. Major new industrial projects require Aveva’s design software expertise and OSIsoft’s data transformation technologies.
Near term, management’s priorities are to deliver integration synergies from the OSIsoft and Schneider deals, enabling a progressive dividend policy.
Orsted
Price DKK 831.20
52 week high-low DKK 1,400.50 – DKK 818.20
Net Yield 1.36%
Hist/Pros PER 23.1/35.1
Equity Market Cap (M) DKK 354,801
Utilities
Mads Nipper, CEO and Marianne Wiinholt, CFO
We met with the Danish wind farm experts fresh off the COP26 circuit. The team were candid regarding their hopes for a net zero future and the short to medium term challenges they face to achieve their ambitions of being a central player in offshore and onshore wind and solar energy generation. Management said they had seen no material impact from the global supply chain crisis. Where there had been some minor price increases, these were reflected in better compensation from their Power Purchase Agreements (PPA). Key materials, such as steel, have typically been purchased at predetermined prices though they can be dynamic on timing these forward agreements to ensure value for money. They have held off on locking in future steel prices recently due to the current elevated steel price. With recent Q3 earnings underwhelming, Orsted also explained how this reflected an uncharacteristically windless European autumn/winter.
Roughly 90% of revenue corresponds to subsidies or PPAs that extend out to 2027. There is therefore little scope to benefit from increased energy prices or for them to lose out to falling energy prices. The remaining 10% of revenues are exposed to energy market pricing, however Orsted hedge this price risk.
Looking longer term, global competition has increased rapidly and will continue to do so, whether from large oil and gas majors or local players. To combat this, they put considerable emphasis on the importance of being first mover in a country and, maintaining financial discipline, enabling them to be more selective as to which auctions they participate in.
SDI Group
Price £1.92
52 week high-low £2.19 – £0.85
Net Yield NA
Hist/Pros PER 39.9/28.0
Equity Market Cap (M) £192
Information Technology
Mike Creedon, CEO
SDI group design and manufacture scientific products for end markets including life sciences, healthcare and astronomy. Since CEO Mike Creedon’s appointment (2012) he has executed on a plan of shrewd acquisitions to form the collection of companies forming SDI Group today. The group divides into two segments: Digital Imaging (45% of revenue) and Sensors & Control (55%).
The businesses making up the Sensors & Control segment range from electrochemical sensors for use in laboratory analysis, to vacuum and gas flow measurement devices.
Mike confirmed that most of SDI’s growth going forward would come from M&A, so we spent some time running through the strategy. He echoed some of the comments we have heard from larger acquisitive companies, that SDI’s culture is what draws acquisition targets to them. They also run a decentralised operating model, affording subsidiaries greater autonomy. But organic growth prospects and margin expansion are limited in the near term, adding pressure on Mike’s ability to execute on further acquisitions, opening the group to execution risk. When asked about SDI’s biggest issues, Mike cited labour costs and supply chain problems. He remains sanguine however and assured us that his tight capital discipline and focus on cash remained a priority.
Looking forward, with an unwavering focus on M&A opportunities seemingly intact, we can expect much of the same. As with any acquisitive business, the proof will be in the execution.
CONSUMER DISCRETIONARY Currys Whitbread
CONSUMER STAPLESReckitt Benckiser Group
ENERGYRoyal Dutch Shell
FINANCIALS
Euronext NV
Legal & General Group Schroders
HEALTH CAREOxford Nanopore Technologies
INDUSTRIALSRicardo
Kone Oyj
Travis Perkins
ITM Power
Ceres Power Holdings
Bunzl
Diploma
INFORMATION TECHNOLOGYDarktraceSDI Group
ASML Holding NV ADR
AVEVA Group
MaterialsHill & Smith Holdings
Victrex
Mondi
Rio Tinto
REAL ESTATESupermarket Income REIT
UtilitiesOrsted
Henry Birt, Research Assistant
Rheanna Filmer, Assistant Research Analyst
