27th Apr 2022 14:24
(Alliance News) - Aveva Group PLC shares continued their recent downtrend on Wednesday, hit by a warning over growth in the year ahead.
The update caused shares to tumble 18% to 1,867.00 pence in London on Wednesday, making the stock the worst performer in the FTSE 100.
So far in 2022, the stock has shed 45%. Over the same time, the wider FTSE 100 index has risen 0.5%.
Its recently ended financial year finished on a strong note, the industrial software firm said.
The industrial software firm said revenue in the final quarter ended March 31 climbed 18% annually on a pro forma organic constant currency basis, a gauge adjusted to include results from OSIsoft. Aveva sealed the acquisition of the data management software provider back in March 2021.
For the whole of financial 2022, pro forma organic constant currency revenue growth was 7%.
However, it warned that revenue growth in the new financial year is expected to slow and margins are set to reduce amid cost pressures.
Aveva aims to drive an acceleration in annual recurring revenue growth in the recently commenced financial year to a level of 15% to 20%. As ARR accelerates, it cautioned, reported revenue will be impacted by the timing of revenue recognition.
In addition to this, revenue will be knocked by the war in Ukraine and sanctions on Russia - though Aveva noted that Russia is a "relatively small" market for the group.
Adjusted earnings before interest and tax in the current financial year will be pressured by additional costs, including wage inflation, increased travel and event costs post-Covid and investment, the company said.
Revenue growth in financial 2023 is expected to be slower than the prior year. Its adjusted Ebit margin will reduce, before resuming growth in financial 2024.
Credit Suisse at the end of March flagged that an unpleasant surprise could be in store from Aveva.
Initiating the stock with a 'neutral' rating, Credit Suisse at the time noted there was "uncertainty" around the near-term financial outlook as Aveva's shift to subscription and software-as-a-service model continues.
"We cannot rule out a weaker financial profile near term due to the potential impact on FY23 guidance," said Credit Suisse, adding that it was fundamentally positive on Aveva.
UBS on Wednesday said the update will likely surprise investors, but if Aveva is able to convince this lowered outlook is mainly related to contract structure and recognition, the fallout "will likely be ameliorated".
By Lucy Heming; [email protected]
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