Aveva Group (LSE: AVV) posted the biggest FTSE share price gain late on Wednesday, jumping 27% on news of a possible takeover approach.
French company Schneider Electric announced it is considering a possible offer for the entire stock. The news gave a welcome boost to the Aveva share price, which had been drifting downwards over the past 12 months.
Schneider already owns 60% of the engineering software company. So should a takeover attempt actually happen, it seems like it could be a done deal. But there’s no guarantee yet.
On Thursday, Aveva pointed out that “there can be no certainty that any offer will be made, nor as to the terms on which any offer will be made (should one be made)“. Any possible offer “would be evaluated by an Independent Committee of the Board of Aveva, together with its advisers“.
Aveva added that “pending any further announcements Aveva shareholders should take no action“.
Sell, or buy?
Well, no action in terms of what shareholders might need to do should a buyout offer emerge, that is. Whether to sell now, after the share price spike, is up to individuals. And I suspect a good few will have done exactly that, pocketing a nice profit.
But I’m more interested in what investors who don’t currently hold Aveva shares should do. Should we buy? If we think an offer is likely to be significantly ahead of the current share price, then we might be looking at a quick gain.
It’s hard to put a reliable valuation on Aveva shares, as the company recorded a pre-tax loss last year. It was down to “the amortisation of intangible assets of £226m“. And that kind of thing makes me twitchy — I don’t like so see what often look like finger-in-the-air valuations of intangible stuff.
Valuation
Still, Aveva reported an adjusted earnings per share figure of 99.6p. That puts the shares on a trailing price-to-earnings (P/E) ratio of 28, after Wednesday’s share price hike. On Tuesday’s closing price, it would have come in at 22.
Those are significantly higher than the FTSE 100‘s long-term average. But for a software technology company with possible growth prospects, it might still represent an attractive valuation.
I do like the sound of Aveva’s technology. It specialises in data management and cloud computing systems for the energy sector. And with efficiencies in the energy sector almost certainly growing in importance in the coming years, I can see a healthy market.
Short-term punt
But the idea of investing in Aveva based on long-term prospects has just been put on hold. Anyone buying now would be taking a punt on whatever offer Schneider might make. If it’s a decent premium, there could be a quick profit. And I won’t be surprised if an attractive offer does emerge.
But if speculators should push the Aveva price much higher, it might look a bit too rich. And Schneider could walk away.
Aveva shares would surely fall back again if that happens. And then I’d seriously consider buying for the long term. But right now, I won’t buy in a bid for a quick profit, as I would see it as nothing more than a gamble.
