Analysts at Numis slashed their target price on software firm Aveva from 4,500.0p to 4,000.0p on Tuesday but said the ongoing shift towards subscription services would generally improve the quality of the firm going forward.
Numis said Aveva’s subscription transition was “relatively long and complex”, with the cash flow effects primarily being driven by the shift from perpetual to any form of subscription and the profit and loss effects principally stemming from a shift from up front revenue recognition to rateable revenue recognition.
However, while Numis doesn’t believe management has yet made all the decisions that will determine the path of transition, it noted that Aveva’s third-quarter update “indicated acceleration”.
“We think it is increasingly likely that Aveva will see a P&L impact. We have remodelled the transition phase FY23-26, downgrading FY23/24/25 EPS by 7%/13%/7%”, said Numis. “The uncertainties around the path for P&L are large, so we view these estimates as illustrative of a J-curve, rather than reliable point forecasts.”
The broker, which stood by its ‘buy’ rating on the stock, kept its full-year 2026 profit and less forecasts unchanged and in line with the firm’s 2021 Capital Market’s Day guidance. Its 2023-26 cash flow forecasts were also little changed, with working capital effects turning positive from the 2024 trading year.
Analysts at Berenberg lowered their target price on online grocery giant Ocado from 1,990.0p to 1,800.0p on Tuesday, stating that innovation implications were “underappreciated”.
Berenberg said benefits unlocked by Ocado Re:Imagined innovations had not been appreciated by the market, in its view, with cost-to-serve reductions likely to improve partner economics, providing scope for Ocado to benefit from fee upside.
The German bank, which reiterated its ‘buy’ rating on the stock, also noted that reduced robot capital intensity and faster capacity deployment had increased customer fulfilment centre valuations.
Berenberg stated that it believes liquidity concerns to be “overdone” and that Ocado’s capital spend was creating “greater barriers to entry and unlocking new market opportunities”.
“Ocado’s £800.0m FY 2022E capex guidance has raised concerns around liquidity requirements. Reassuringly, Ocado has £1.5bn of cash and the first convertible is not due until FY 2026. However, we expect Ocado to sustain its innovation and if additional capital is required, debt financing is most likely,” said Berenberg.
“We expect capital markets to be supportive, given clear innovation and demonstrated profitability at the proof of concepts Ocado Retail and Solutions UK. With £160.0m development capex in FY 2022E, almost four times as much as AutoStore has done in the past four years combined, Ocado’s is increasing its competitive barriers and unlocking new market opportunities, improving its long-term outlook.”
