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Broker snap: Aveva has cash for acquisition

Friday's rise in the Baltic Dry index, which measures price changes in international shipping markets, has prompted Panmure Gordon to recalculate its numbers for engineering data and IT systems provider Aveva.

The broker thinks that its previous assumption of a 3% revenue rise for Aveva in 2011 may be on the light side given that the Baltic Dry index rose 5.73% on Friday. Historically, 'Aveva's share has followed this index,' Panmure analyst George O'Connor asserts.

'We now factor in 6% revenue growth from 3% earlier - we recall the (lean) 2004 when Aveva reported 9% revenue growth and the 10% revenue growth in 2006. To be sure the current UK environment remains fragile but Aveva is a non-sterling earner (UK is c 15% of revenue) and has multiple growth streams from China, nuclear, oil new geographies (chiefly Brazil),' the broker said.

As a result of a sunnier outlook on the revenue front the broker has upgraded its 2011 earnings per share estimate for Aveva from 55.6p to 58.7p. This, in turn, has prompted a change in the target price from 1142p to 1226p. The broker advocates buying the shares.

Panmure thinks Aveva will have around £150m of net funds at the end of fiscal 2010 which it thinks it will use to fund an acquisition, though a special dividend is also a possibility.

'An acquisition is likely to be in the PLM [product lifecycle management] arena although technology acquisitions in plan should not be ruled out either,' the broker suggests.

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