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Aveva shares leapt tenfold in the last decade, I think the 2020s could be just as good

It’s a rare animal indeed, a British tech firm, a member of that most illustrious of clubs (the FTSE 100), and a company that is turning heads around the world. But I think there are good reasons to believe that despite the meteoric growth seen in recent years, Aveva (LSE:AVV) shares are a long way from peaking. Indeed, I think the 2020s could be just as good for the shares as the 2010s.

Aveva provides engineering and industrial software. Its main area of speciality was oil and mining sectors, but thanks to a merger with French company Schneider Electric, it has become less reliant on these notoriously cyclical sectors.

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The company entered the FTSE 100 last year, replacing Marks & Spencer in the index, but it would be difficult to find two companies that are more different. While M&S struggles with the rapidly changing digital retail space, Aveva is helping industry embrace digital.

Its performance has been impressive indeed. Revenue increased from £209m in the year to March 2015 to £767m in the year by the end of March 2019. Profits took a hit last year, but the most recent update revealed a return to profits that are expected to pass a quarter of a billion pounds within two years.

As for the shares, they have increased 78% over the last 12 months, by 280% over the last five years and by roughly 40 times so far this century.

Not surprisingly, with growth like that, its P/E ratio is at quite an altitude — over 200. But its current valuation of £8.1bn based on projected profits of £247m next year does not seem so excessive.

What I like

That’s not why I like the company, however. What I like are the future prospects, and the way new technologies are making the Aveva product offering more compelling than ever before.

The key technology is 5G. This is creating the opportunity for what’s known as the industrial internet of things — using much faster internet speeds to generate a flow of data across industry and in engineering facilities that could be truly transformative.

Not so long ago, there was a sense of fear permeating industry with people wondering how companies could respond to disruptive changes created by digital technology. At a time when digital was tearing up the high street, there was an awareness that industry was also vulnerable. 

The debate has moved on, now companies are  focused on the response — not necessarily making themselves disruptive-technology-proof, but often looking at ways that they themselves can disrupt. Digital technologies are key to making this happen. Advances in AI converging with the industrial internet of things is creating new opportunities as quickly as old models die.  Digital transformation has become vital and Aveva is a key player in this very area.

That’s why I think that its growth potential is almost as impressive today as it was 10 or even 20 years ago. 

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Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.