aveva - credit suisse
TRANSCRIPT
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
15 October 2014
Europe/United Kingdom
Equity Research
Computer Services & IT Consulting
AVEVA (AVV.L) SMALL & MID CAP RESEARCH
Time to catch the falling knife
■ Upgrade to Outperform: Momentum in the oil and gas sector remains
mixed, but following a 37% YTD share price fall (and a 49% decline from last
year's highs), we think risk/reward is now in shareholders' favour. Hence, we
upgrade our rating to Outperform and raise our target price to 1800p.
■ Further forecast changes: Following the recent profits warning, we
downgraded FY15E profits by 22%. Having taken a detailed review of our
forecasts, we downgrade profits by a further 3%. Consensus has not fully
settled, but we believe this takes us c10% below consensus.
■ Rentals not as bad as feared: Much of the investor debate has focused
around the non-recurrence of supposedly recurring rental revenues and we
forecast a 33% reduction in 1H15 rentals. However, much of this relates to
FX, timing differences and accounting treatments. On an underlying basis
we think the decline is closer to 5%. That is not ideal, but it is a far more
resilient message than investor fears.
■ Valuation: On numbers that are c10% below consensus, we estimate the
shares are trading on a Dec 15 ex-cash PE of just 14.2x and EV/ recurring
revenue of 4.9x, in line with typical trough valuations across the software
sector. We think this looks far too low and hence we upgrade to Outperform.
AVEVA is a market leading provider of
design solutions to the process plant
industries, especially in the oil and gas
sector.
AVEVA has a consistent track record of
delivering above average growth, backed by
increasing investment and complexity in the
group's key markets. Furthermore, new
product launches such as the current E3D
offer scope for a multi-year product upgrade
cycle.
Rating (from Neutral) OUTPERFORM* Price (13 Oct 14, p) 1,357.00 Target price (p) (from 1,700.00) 1,800.00¹ Market cap. (£ m) 867.72 Enterprise value (£ m) 726.5
*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector.
¹Target price is for 12 months.
Financial and valuation metrics
Year 03/14A 03/15E 03/16E 03/17E Revenue (£ m) 237.3 210.5 217.8 230.6 EBITDA (£ m) 78.41 63.78 70.06 74.61 Pre-tax Profit Adjusted (£ m) 80.53 62.78 69.56 74.61 CS adj. EPS (p) 92.37 72.93 80.79 86.66 Prev. EPS (p) — 75.01 83.98 91.47 ROIC (%) 92.24 68.49 72.13 73.79 P/E (adj., x) 14.69 18.61 16.80 15.66 P/E rel. (%) 101.1 131.2 128.2 130.0 EV/EBITDA 9.6 11.4 10.0 9.0
Dividend (03/15E, p) 28.00 IC (03/15E, £ m) 70.43 Dividend yield (%) 2.1 EV/IC 10.3 Net debt (03/15E, £ m) -141.2 Current WACC 8.00 Net debt/equity (03/15E, %) -66.7 Free float (%) 100.00 BV/share (03/15E, £) 3.3 Number of shares (m) 63.94
Source: Company data, Credit Suisse estimates
Research Analysts
Charles Brennan CFA
44 20 7883 4705
15 October 2014
AVEVA (AVV.L) 2
AVEVA AVV.L Price (13 Oct 14): 1,357.00p, Rating: OUTPERFORM, Target Price: (from 1,700.00) 1,800.00p
Income statement (£ m) 03/14A 03/15E 03/16E 03/17E
Revenue (£ m) 237.3 210.5 217.8 230.6 EBITDA 78 64 70 75 Depr. & amort. (8) (6) (6) (6) EBIT (£) 80 62 69 73 Net interest exp. 0 0 1 2 Associates — — — — Other adj, — — — — PBT (£) 81 63 70 75 Income taxes (18) (14) (16) (17) Profit after tax 63 49 54 58 Minorities — — — — Preferred dividends — — — — Associates & other (2) (1) (1) (1) Net profit (£) 60 47 53 56 Other NPAT adjustments (7) (4) (4) (4) Reported net income 53 44 49 53
Cash flow (£) 03/14A 03/15E 03/16E 03/17E
EBIT 80 62 69 73 Net interest 0 0 1 2 Cash taxes paid (18) (14) (16) (17) Change in working capital (4) (5) (5) (5) Other cash & non-cash items (4) 2 1 0 Cash flow from operations 54 45 50 53 CAPEX (3) (3) (3) (3) Free cashflow adj. — — — — Free cash flow to the firm 52 42 47 50 Acquisitions — — — — Divestments — — — — Other investment/(outflows) 95 (0) — 0 Cash flow from investments 92 (4) (3) (2) Net share issue/(repurchase) (0.72) — — — Dividends paid (116) (18) (19) (21) Issuance (retirement) of debt — — — — Other (98) — — — Cash flow from financing activities
(215) (18) (19) (21) Effect of exchange rates (4) — — — Changes in Net Cash/Debt (73) 24 28 30 . Net debt at start (190) (118) (141) (169) Change in net debt 73 (24) (28) (30) Net debt at end (118) (141) (169) (199)
Balance sheet (£ m) 03/14A 03/15E 03/16E 03/17E
Assets Cash and cash equivalents 77 101 129 159 Accounts receivable 84 94 104 114 Inventory — — — — Other current assets 43 43 43 43 Total current assets 204 238 275 315 Total fixed assets 8 9 9 10 Intangible assets and goodwill 60 57 54 51 Investment securities — — — — Other assets 6 6 6 6 Total assets 278 309 344 382 Liabilities Accounts payable 73 78 83 88 Short-term debt — — — — Other short term liabilities 9 9 9 9 Total current liabilities 82 87 92 97 Long-term debt — — — — Other liabilities 11 10 10 9 Total liabilities 93 97 102 106 Shareholders' equity 185 212 243 275 Minority interest — — — — Total equity & liabilities 278 309 344 382 Net debt (£ m) (118) (141) (169) (199)
Per share data 03/14A 03/15E 03/16E 03/17E
No. of shares (wtd avg) 65 65 65 65 CS adj. EPS (p) 92.37 72.93 80.79 86.66 Prev. EPS (p) — 75.01 83.98 91.47 Dividend (p) 27.00 28.00 32.00 36.00 Div yield 1.99 2.06 2.36 2.65 Dividend payout ratio 29.23 38.40 39.61 41.54 Free cash flow per share (p)
78.84 64.81 71.91 77.01
Key ratios and valuation
03/14A 03/15E 03/16E 03/17E
Growth(%) Sales 7.8 (11.3) 3.5 5.8 EBIT 12.2 (22.2) 10.1 6.6 Net profit 14.5 (21.5) 10.8 7.3 EPS 19.2 (21.1) 10.8 7.3 Margins (%) EBITDA margin 33.0 30.3 32.2 32.4 EBIT margin 33.7 29.6 31.5 31.7 Pretax margin 33.9 29.8 31.9 32.4 Net margin 25.5 22.5 24.1 24.4 Valuation metrics (x) EV/sales 3.2 3.5 3.2 2.9 EV/EBITDA 9.6 11.4 10.0 9.0 EV/EBIT 9.4 11.7 10.2 9.1 P/E 14.7 18.6 16.8 15.7 P/B 4.8 4.2 3.6 3.2 Asset turnover 0.85 0.68 0.63 0.60 ROE analysis (%) ROE stated-return on equity
24.4 22.0 21.5 20.3 ROIC 92.2 68.5 72.1 73.8 Interest burden 1.0 1.0 1.0 1.0 Tax rate 25.2 24.5 24.5 24.5 Financial leverage — — — — Credit ratios (%) Net debt/equity (63.5) (66.7) (69.7) (72.2) Net debt/EBITDA (1.5) (2.2) (2.4) (2.7) Interest coverage ratio (173.3) (124.6) (68.6) (48.7)
Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities
(EUROPE) LTD. Estimates.
1267
1767
2267
Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14
Price Price relative
The price relative chart measures performance against the FTSE 100 IDX which
closed at 6353.81 on 10/10/14
On 10/10/14 the spot exchange rate was £.79/Eu 1. - Eu .79/US$1
15 October 2014
AVEVA (AVV.L) 3
Positive risk/ reward
A recent profits warning highlights a lack of short term visibility at AVEVA. This means
there is still a wide range of potential outcomes for the year. However, following the share
weakness, we think risk/ reward is positive. We upgrade our rating to Outperform on the
back of four main issues, 1) Oil and gas data is mixed, rather than universally weak, 2)
rental revenues are more resilient than feared, 3) we have further de-risked forecasts, and
4) valuation looks compelling.
1) Oil and gas is the main market
Figure 1: Oil and Gas exposure is key, FY14
Oil & Gas
Power
Marine
Other Markets
Source: Company data
Looking at key end markets, the oil and gas sector accounts for 45% of revenues at
AVEVA. Furthermore, the oil and gas sector will account for some of the demand in the
marine sector, so exposure to the oil and gas sector is arguably even higher. Against this
backdrop, investors are right to be cautious of recent soft newsflow across the sector.
However, while we acknowledge the outlook is skewed negatively, we think the data
points are patchy rather than universally poor.
As an example of the pressures on the sector, we note recent comments from Total1 which
indicated that capex peaked at $28bn in 2013, and is expected to reduce to $26bn in FY14
and to $25bn in FY15. Similarly, according to Bloomberg2, Statoil is preparing to increase
cash flow by $5bn a year cutting capex by as much as 25% compared to FY13.
Given concern over the momentum in the oil and gas sector, we have been tracking order
book growth for a range of AVEVA's customers. These include: Technip, Saipem, Aker
Solutions, McDermott, Fluor, Jacobs, SNC-Lavalin, KBR and Foster Wheeler. For much of
the past 18 months, order book growth has slowed and even turned negative, see Figure 2.
This has pointed to building pressure in AVEVA's business.
1 http://www.total.com/en/media/news/press-releases/total-presents-outlook-and-objectives
2 http://www.bloomberg.com/news/2014-06-05/statoil-to-deepen-cost-cuts-to-generate-extra-5-billion-in-
cash.html
15 October 2014
AVEVA (AVV.L) 4
Figure 2: Customer order book growth, $bn
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
Source: Credit Suisse research, based off Technip, Saipem, Aker Solutions, McDermott, Fluor, Jacobs, SNC-Lavalin, KBR and Foster Wheeler
However, in the most recent quarter, this orderbook analysis has turned sharply positive,
see Figure 3. This volatility reflects our small sample size and we are not brave enough to
suggest this reflects the start of an upturn. However, we do think this this indicates the
market is project specific rather than universally poor. Behind this analysis both Saipem
and Technip have posted very significant increases in orderbooks; for instance Saipem
announced 2Q14 order intake of €9.2bn, including a $4bn order for 2 FPSOs on the
Kaombo filed, offshore Angola. Technip announced 2Q14 order intake of €7.1bn, helped
by a €4.5bn contract in Russia's Yamal field and a 55% share of a $3.5bn contract in
Kaombo.
Figure 3: Customer orderbook trends rebound in 2Q14, $bn
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
Source: Credit Suisse research, based off Technip, Saipem, Aker Solutions, McDermott, Fluor, Jacobs, SNC-Lavalin, KBR and Foster Wheeler
Whilst the overall tone of the industry is negative, this resilience of these orderbook trends
is a reminder of the medium term positive fundamentals. In particular, the oil majors need
15 October 2014
AVEVA (AVV.L) 5
to invest to replenish depleting resources and investment is likely to take place in
increasingly complex environments (eg deeper water) that requires greater design time.
2) Rental trends are exaggerated
At times of uncertainty, technology investors like to fall back on recurring revenues. The
problem with AVEVA is that management has pointed to the non-renewal of supposedly
recurring rental contracts in Brazil and Korea. Meanwhile, we forecast a 33% year-on-year
decline in rentals at a group level in 1H15. However, we believe that much of this shortfall
is due to temporary/ one off factors. On an underlying basis, we think rentals are down
c5%. This is not ideal but far more resilient than investor fears.
Behind the rental trends, we think it is worth remembering that AVEVA has a slightly
different accounting treatment for rental contracts. Notably, AVEVA books 83% of rental
revenues upfront. This revenue recognition mimics the revenue recognition under a
licence deal. For instance, if £100k of licence was sold at the start of the year, with a 20%
maintenance contract, then £120k of revenue would be booked for the year as whole.
However, the licence element is £100k/£120k or 83% of the total. This theoretical
proportion is applied to the rental stream.
With this in mind we have broken our EDS divisional rental forecasts (the key division)
down in Figure 4. We assume that there is a 7% negative impact from FX. Management
has also flagged up contracts worth £7m that should slip from 1H15 to 2H15. This
movement is exaggerated by the revenue recognition policy but should neutralise on a full
year basis.
We estimate that non-recurring deals in Brazil and Korea lead to the loss of c£5m of rental
revenues. However, due to revenue recognition, this £5m should be set against last year's
full year EDS rental revenues of £105m (and not 1H revenues which exaggerates the
impact). This corresponds to c5% reduction in revenue run rates. Negative growth trends
are never good, but we think this is a manageable decline and one that is considerably
more resilient than investor fears.
Figure 4: Break down of EDS 1H15 rental revenues, £m
46
-3
-7
-5
30
0
5
10
15
20
25
30
35
40
45
50
1H14 rental
revenue
FX impact Timing
differences
Non recurring
rentals
1H15E rental
revenues
Source: Company data, Credit Suisse estimates
15 October 2014
AVEVA (AVV.L) 6
3) Forecasts de-risked further
AVEVA has already issued a statement indicating that revenue for the first half to
September will be lower than initially planned. Specifically, management indicated that 1H
revenues would be £84-90m, versus our £101m expectation at the time. This led us to
downgrade FY15E profits by 22%.
We have now taken a more considered view of forecasts and we downgrade profits by a
further 3%. There are three key assumptions behind our new forecasts, 1) After a 7% FX
headwind in 1H15, we assume the headwind narrows to -0.7% in 2H15 as the comps start
to ease (the FX headwind was -6% in 2H14), 2) We assume that £7m of rental revenues
that move from 1H15 to 2H15 merely offsets £7m of lost business in 2H15. As a result,
rentals are flat in 2H15 and 3) we assume that AVEVA cuts 2H15 costs by £5m. This is
equivalent to the rate of cost reduction that AVEVA achieved in 2H10.
On the back of these assumptions, we downgrade profits and EPS by a further 3%. A
summary of our forecast changes is shown below.
Figure 5: Summary forecast changes
FY15 old FY15 new % change FY16 old FY16 new % change
Annual fees 52 53 55 56
Rental licence fees 99 95 105 95
Initial licence 38 42 40 44
Training and Service 21 21 23 22
Total Revenues 210 211 0% 223 218 -2%
Growth -12% -11% 5% 3%
Adjusted operating profits 64 62 -3% 71 69 -4%
Adjusted margin % 30.5% 29.6% 31.9% 31.5%
Adj EPS 75.0 72.9 -3% 84.0 80.8 -4%
Net cash 143 141 173 169
Source: Credit Suisse estimates
We acknowledge there is still a wide range of outcomes for the year. However, it is worth
noting that our forecasts are around 10% below Bloomberg consensus.
Figure 6: Forecasts versus consensus
FY15E CS FY15E BBG % diff FY16E CS FY16E BBG 5 diff
Total revenues 211 223 -6% 218 241 -10%
Adjusted operating profits 62 71 -12% 69 79 -14%
Adj EPS 72.9 80.8 -10% 80.8 90.7 -11%
Source: Bloomberg, Credit Suisse estimates
It is also worth noting that our revised forecasts are now broadly in line with average
profits over the last 7 years. As a sanity check, we think this feels realistic and in no way
suggests obvious downside risk. Our forecasts certainly represent a sensible level to start
thinking about through cycle profitability.
15 October 2014
AVEVA (AVV.L) 7
Figure 7: Forecasts are now broadly in line with average profits from 2008-14
0
10
20
30
40
50
60
70
80
90
2008 2009 2010 2011 2012 2013 2014 2015E
£m
Adjusted pre-tax profits Adjusted pre-tax profits (average 08-14)
Source: Company data, Credit Suisse estimates
4) Valuation looks compelling
We think there are 2 important aspects of the valuation: 1) the net cash balance and 2) the
strategic value at AVEVA. We think the current valuation undervalues both these aspects.
We value AVEVA on 20x downgraded profits and take account of the net cash position.
That justifies a 1800p target price and hence we upgrade to Outperform.
1) Significant balance sheet strength
We forecast FY15 year-end net cash of £141m. This equates to 16% of the market cap,
which makes a significant difference to valuations. Rather than trading on a Dec 15 PE of
17.2x, we calculate that AVEVA trades on a Dec 15 ex-cash PE of just 14.2x. This looks
far too low for a decent quality software company, with leading market shares and
strategic value.
We do not have time series data for ex cash valuations, but to give some context to
current valuations, on a headline PE basis AVEVA currently trades at a 30% discount to 5
year average PE valuations, see Figure 8.
Aside from the direct valuation implications, it is also worth noting that management has
made no secret of the fact that it continues to analyse strategic uses for the balance sheet.
AVEVA last announced a £100m capital return in 2013. At that time, the net cash position
was £190m. Now that we are forecasting a year-end net cash position of £140m, we see
no reason why AVEVA can't announce another £50m return of capital. The resultant £90m
cash pile would still be generous, so we would not be surprised by an even larger capital
return.
Capital returns such as this make no difference to ex-cash valuations. However, capital
returns do enhance EPS and across the sector they have helped drive significant share
price outperformance at companies like Sage, Capgemini and Micro Focus.
15 October 2014
AVEVA (AVV.L) 8
Figure 8: AVEVA trades on multi-year PE lows
15
17
19
21
23
25
27
Aveva P/E Aveva 5 Yr avg P/E
Source: Datastream
2) Strategic value
AVEVA is widely seen as a strategic asset, that could be vulnerable to M&A activity. We
think there is a wide range of potential credible acquirers from traditional software
companies like Dassault (active in 3D but limited oil and gas exposure) and Oracle (which
is targeting vertical industry applications), through to capital goods companies like
Siemens, ABB, GE or Emerson.
When looking at strategic value, investors often fall back on multiples of recurring
revenues. The following table shows a selection of recent deals across the sector. This
table shows that legacy businesses have tends towards 5x recurring revenues, whereas
growth/ cloud assets have been over 10x recurring revenues. Against this backdrop the
current 5.0x EV/ recurring revenue valuation at AVEVA looks far too low.
15 October 2014
AVEVA (AVV.L) 9
Figure 9: Recent M&A deals
Acq. announced date Acquirer Deal Value (USD mn) Target Name EV/Recurring (last
reported)
04/04/2011 Apax Partners LLP 936 Epicor Software Corp/Old 4.8
18/11/2013 Advent International Co 1,698 Unit4 NV 4.9
02/09/2014 Thoma Bravo LLC 2,152 Compuware Corp 5.0
27/08/2012 Multiple acquirers 1,028 Deltek Inc 5.2
23/06/2014 Oracle Corp 5,088 MICROS Systems Inc 5.5
19/03/2012 Vista Equity Partners LLC 2,097 Misys Ltd 5.6
26/04/2011 Golden gate Capital 2,000 Lawson Software 5.7
06/05/2013 Multiple acquirers 6,695 BMC Software Inc 5.9
27/08/2012 IBM 1,230 Kenexa Corp 6.0
29/09/2014 Vista PE 4,300 Tibco 6.2
01/11/2012 RedPrairie Corp 1,857 JDA Software Group Inc 6.6
13/07/2011 Trimble 489 Tekla Corporation 8.4
20/12/2012 Oracle Corp 724 Eloqua Inc 8.6
12/05/2010 SAP SE 5,323 Sybase Inc 8.8
24/10/2011 Oracle Corp 1,467 RightNow Technologies Inc 10.0
03/12/2011 SAP SE 3,276 SuccessFactors Inc 10.0
20/12/2013 Oracle Corp 1,438 Responsys Inc 12.7
22/05/2012 SAP SE 4,324 Ariba Inc 12.9
18/09/2014 SAP SE 7,241 Concur Technologies Inc 13.3
23/09/2013 Vista Equity Partners L 595 Greenway Medica 13.4
30/01/2014 Dassault Systemes 609 Accelrys Inc 14.2
29/10/2012 Riverbed Technology Inc 912 OPNET Technologies Inc 14.6
18/08/2011 HP 10,300 Autonomy Corp Ltd 23.7
Source: Bloomberg
The following chart shows that excluding the credit crisis period, AVEVA has consistently
troughed at 5.0x recurring revenues in the past.
Figure 10: AVEVA EV/ recurring revenues (1-yr forward)
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14
Source: Thomson Reuters Datastream
15 October 2014
AVEVA (AVV.L) 10
Figure 11: Derivation of valuation multiples
£m 2015E 2016E
Share price (p) 1357
No. of shares (m) 65
Mkt cap 882
Net cash 141 169
Dec 15E cal. net cash 162
EV 720
Adjusted operating profits 62 69
Cal. Adj operating profit 67
Tax -25% -25%
Nopat 51
Dec 15E Ex cash PE 14.2
Recurring revenue 148 151
Dec 15E Cal. recurring revenues 150
Dec 15E EV/ recurring revenues 4.8
Source: Credit Suisse estimates
Figure 12: Sector valuations
Calendarised to Dec Ratings Share price PE EV/ Sales EV/ maintenance
13/10/2014 FY14E FY15E FY14E FY15E FY14E FY15E
AVEVA Outperform 1357 17.7 17.2 3.5 3.4 4.9 4.8
Dassault Outperform 49 27.1 24.4 4.8 4.2 7.5 6.6
Sage Underperform 353 15.6 14.5 3.2 3.1 4.4 4.2
SAP Outperform 54 15.7 14.5 3.8 3.4 10.4 6.0
Software AG Underperform 18 8.6 8.2 1.6 1.3 4.2 3.5
Temenos group Underperform 32 23.2 19.5 4.6 4.1 10.2 9.0
Micro Focus Neutral 994 15.3 14.6 5.7 4.9 6.8 5.5
Fidessa Outperform 2180 26.5 25.3 2.6 2.5 3.1 2.9
Hexagon AB Not Covered 203 19.0 16.0 3.5 3.1 NA NA
Average 18.8 17.1 3.7 3.3 6.4 5.3
Autodesk Inc. Outperform 52 42.0 35.8 4.4 4.0 11.3 10.4
Intuit Not Covered 80 26.0 26.6 4.8 4.5 NA NA
Microsoft Corporation Outperform 44 16.3 14.8 3.2 2.8 NA NA
Oracle Corporation Outperform 38 12.9 12.0 4.0 3.8 8.7 8.2
Salesforce.com Inc. Outperform 53 106.3 76.7 6.2 4.8 6.5 5.1
NetSuite Inc. Outperform 85 327.4 187.9 11.3 8.7 14.0 10.8
PTC Not Covered 35 15.7 14.0 3.0 2.8 6.1 5.6
TIBCO Software Not Covered 23 33.9 30.3 3.7 3.6 5.7 5.3
Average 72.6 49.7 5.1 4.4 8.7 7.6
Source: Thomson Reuters, Credit Suisse estimates, IBES for Not covered companies
15 October 2014
AVEVA (AVV.L) 11
Companies Mentioned (Price as of 13-Oct-2014)
ABB (ABBN.VX, SFr19.65) AVEVA (AVV.L, 1357.0p, OUTPERFORM, TP 1800.0p) Autodesk Inc. (ADSK.OQ, $51.94) Dassault Systemes (DAST.PA, €48.55) Emerson (EMR.N, $58.67) Fidessa (FDSA.L, 2180.0p) General Electric (GE.N, $23.95) Micro Focus (MCRO.L, 993.5p) Microsoft Corporation (MSFT.OQ, $43.65) NetSuite Inc. (N.N, $85.12) Oracle Corporation (ORCL.N, $38.23) SAP (SAPG.F, €54.48) Sage Group (SGE.L, 352.5p) Salesforce.com Inc. (CRM.N, $53.23) Siemens (SIEGn.DE, €84.5) Software AG (SOWG.DE, €18.02) Temenos Group (TEMN.S, SFr32.0)
Disclosure Appendix
Important Global Disclosures
Charles Brennan CFA, Charles Clarke, Julian Mitchell, Jonathan Shaffer, Jonathan Hurn, CFA, Andre Kukhnin, CFA, Simon Toennessen and Max Yates each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for AVEVA (AVV.L)
AVV.L Closing Price Target Price
Date (p) (p) Rating
19-Nov-12 1975.77 2020.95 N *
23-May-13 2312.09 2240.00
18-Nov-13 2365.00 2410.00
06-Jan-14 2146.00 2200.00
27-May-14 2350.00 2450.00
23-Jul-14 2047.00 2100.00
12-Sep-14 1620.00 1700.00
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst 's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representi ng the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
15 October 2014
AVEVA (AVV.L) 12
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 44% (55% banking clients)
Neutral/Hold* 39% (50% banking clients)
Underperform/Sell* 14% (43% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Price Target: (12 months) for AVEVA (AVV.L)
Method: We value AVEVA on 20x an ex cash FY15 PE. We think this looks appropriate for a decent quality company, with strategic value.
Risk: The downside risk to our TP is a further significant slowdown in licence and rental revenues streams. However, we have tried to factor that into our reviesed forecasts.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (DAST.PA, SAPG.F, ADSK.OQ, MSFT.OQ, ORCL.N, GE.N, ABBN.VX, EMR.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (MSFT.OQ, ORCL.N, GE.N, ABBN.VX) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (MSFT.OQ, GE.N, ABBN.VX) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (GE.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (MSFT.OQ, ORCL.N, GE.N, ABBN.VX) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (DAST.PA, SAPG.F, ADSK.OQ, MSFT.OQ, ORCL.N, CRM.N, GE.N, ABBN.VX, EMR.N) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (MSFT.OQ, GE.N, ABBN.VX) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (ADSK.OQ, MSFT.OQ, ORCL.N, CRM.N, N.N, GE.N, EMR.N).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (SAPG.F, TEMN.S, ABBN.VX, SIEGn.DE).
15 October 2014
AVEVA (AVV.L) 13
Credit Suisse has a material conflict of interest with the subject company (GE.N) . Credit Suisse is acting as financial advisor to General Electric Company (GE) in connection with the announced proposed acquisition of certain assets from Alstom S.A.
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (ORCL.N). As of the date of this report, an analyst involved in the preparation of this report, Sitikantha Panigrahi, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in call options of Oracle Corporation (ORCL.N).
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (AVV.L, DAST.PA, SGE.L, SAPG.F, SOWG.DE, TEMN.S, MCRO.L, FDSA.L, ADSK.OQ, MSFT.OQ, ORCL.N, ORCL.N, CRM.N, N.N, GE.N, ABBN.VX, SIEGn.DE, EMR.N) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.
The following disclosed European company/ies have estimates that comply with IFRS: (DAST.PA, SGE.L, SAPG.F, TEMN.S, ABBN.VX, SIEGn.DE).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (MSFT.OQ, GE.N, ABBN.VX, SIEGn.DE) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse Securities (Europe) LimitedCharles Brennan CFA ; Jonathan Hurn, CFA ; Andre Kukhnin, CFA ; Tiantian Li ; Simon Toennessen ; Max Yates
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
15 October 2014
AVEVA (AVV.L) 14
References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited (CIN no. U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Copyright © 2014 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
draft upgrade.doc