The FTSE 100 industrial software specialist agreed the deal in August, in November unveiled a fully underwritten GBP2.8bn rights issue, and last month said with almost all regulatory approvals given, the purchase was on track to close by early February at the latest.
Analysts at UBS upgraded Aveva to a ‘buy’ recommendation due to what they say was their positive view on “the quality of the OSIsoft business being acquired”.
This is strengthened by what are seen as credible cost synergy plans and optimism that cross-selling could produce revenue upside, as well as the effect of migrating OSIsoft to a subscription revenue model.
Compared to Aveva’s merger with Schneider Electric Software in 2018, UBS sees lower risks from integration, though management proved “more than capable” last time by over-delivering on both cost and revenue synergies.
While Aveva is trading at 28 times 2022 expected earnings and 3.4% free cash flow yield, which is among the more expensive under the analysts’ coverage, they said, “we think the premium growth prospects supported by the structural drivers of [industrial internet of things] warrant it”.
The level of spend on IT undertaken by its industrial clients remains low relative to many other sectors and UBS believes the “digitalisation imperative” will support premium growth at Aveva, with industry analyst Gartner predicting 14% compound annual growth in software spend by the industrials sector out to 24 compared with 10% in all the other end markets.
UBS and Investec both upped their share price targets to 4,100p.