Why AVEVA Group plc Is Falling Today

Computer software developer AVEVA (LSE: AVV) is falling sharply today after the company issued a revenue warning. At time of writing, the company’s shares have fallen by around a fifth, making Aveva the FTSE 350’s biggest decliner today. 

And it’s easy to see why. Before today’s warning, Aveva was trading at a forward P/E of 22.5, leaving little room for error if things went wrong. 

Profit warning ARM Holdings

Aveva warned this morning that the company’s first-half results are expected to show a material impact from the effects of currency and the timing of key contract renewals. It’s expected that these effects will cost the group £14m in lost revenue.

What’s more, after reorganising its global sales force earlier this year, Aveva is now reporting mixed levels of customer activity. Demand for the company’s products has fallen within South America and some Asian markets, although double-digit sales growth within China has offset some declines. 

All in all, as a result of these factors, the group’s revenue for the first half is expected to fall in the region of £84m to £90m, but these numbers could be revised lower if contracts are not signed on time. Management believes that due to the timing of contract renewals, the majority of Aveva’s revenue will fall within the second half of the year. 

In light of today’s news and current trading conditions, Aveva’s management is reviewing the group’s headcount growth plans and discretionary expenditure — cutting cost in other words. 

Still, even after today’s warning investors should not give up on Aveva just yet. With the company’s earnings now weighted to the second half, investors should wait for the release of these trading figures before making a decision to buy sell or hold.  

Plenty of potential 

Aveva’s growth over the past five years has been unrivalled, with earnings per share nearly doubling. The company’s shares have jumped 76% over the period as a result, that’s including today’s loss. Over the long-term, or past ten years, Aveva’s shares have risen 820%. So, it would appear as if today’s slip up is only a slight step back in the grand scheme of things.

Additionally, during the past six months there has been plenty of chatter around the City that Aveva could be a takeover target. Some sources have speculated that the group has been targeted by a U.S. engineering multinational such as Emerson. Siemens and General Electric have also been listed as potential buyers, along with Dassault Systemes.

Analysts believe that Aveva’s business is highly defensive for existing players and an acquisition could shut out many competitors. Today’s declines could spur a potential buyer into action.  

Time to buy?

Today's declines may put some investors off Aveva, even after considering the company's historic growth and takeover potential. That's not a problem, every investor has their own way of doing things and there are plenty of other opportunities out there.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.