The Investment Column: Aveva is capable of engineering some impressive returns for new investors

Liontrust Asset Management; Queenco

Alistair Dawber
Wednesday 28 May 2008 00:00 BST

Our view: Buy

Share price: 1,284p (+22p)

Wow! No matter which way you cut engineering support group Aveva's recent performance, it looks pretty impressive. The company, which provides IT technology that aids power station and ship building projects, announced an 83 per cent increase in pre-tax profits yesterday, continuing its performance of recent years, which has led several analysts to describe the group as a banker for stockholders.

Investors will be further heartened by the fact that while Aveva is keen to make, albeit conservative, acquisitions, its chief executive Richard Longdon does not rule out the prospect of returning its growing cash position to shareholders at some point in the future.

If it all sounds too good to be true, it might be. The worry for investors is the share price already reflects Aveva's stellar performance and that buying now would be too late. Watchers at Panmure Gordon, who have the stock on hold, say the shares have been a gravy train recently and that at some point there will be a time to hop off. However, they also say the group surpassed expectations yesterday in the "important areas, such as its net cash position and its dividend payment".

Those at Seymour Pierce suggest the recent surge in the share price is actually not that impressive. They reckon the group should be looking to trade at 25 to 30 times its estimated 2009 earnings, rather than its pedestrian rate of 22 or 23 times. This, they argue, would give it a share price of 1,450p, so the current level is "not a bad entry point".

The analysts also point out the area in which the group has hitherto disappointed, its US market share, is set to improve after Aveva signed several agreements with the likes of Chevron.

The group is a very good performer and holders should be grateful their money is safe. New investors should have enough time to see impressive returns. Buy.

Liontrust Asset Management

Our view: Hold

Share price: 312.75 p (+0.25p)

Lots of investors will have stopped reading at "Asset Management", assuming that any firm working in the City is so irretrievably caught up in the credit crunch they should not touch it with a barge pole.

In many cases, those investors would be fully justified. However, Liontrust argues it is different. Its chief executive, Nigel Legg, reckons the group's detailed processes, research showing market trends over many years and the fact most of its staff have been in situ for a long time, mean Liontrust is worth a punt.

The figures back him up. The company published its annual results to the end of March yesterday, showing revenue and profits were up. Asset under management, one of the key tests of fund managers, suffered somewhat, falling to £4.7bn from £5.5bn. However, since the end of March, that figure is back up to £5.2bn, which supports Mr Legg's thesis that, as an asset manager, the group is a defensive stock. The fact that performance fees were up in the reporting period also shows the firm is doing something right.

Unlike most financial services companies, Liontrust's share price has been on the up recently. However, this is largely due to an acknowledged approach from a bidder that Mr Legg declines to name, and which has not yet submitted a firm offer.

This could spell danger for investors in the short term. As analysts at Fox-Pitt Kelton note, the firm would not particularly welcome a solid approach and, they argue, the shares already look reasonably valued, at 11.4 times 2009 estimates versus the sector at about 10 times. "But [that] would be vulnerable were the approach to come to nothing."

As asset managers go, Liontrust is probably one of the better investment choices. However, there is too much uncertainty about the group, especially concerning a potential buyout, for investors to buy. Once that ambiguity has been resolved, investors should take another look. Hold.


Our view: Hold for now

Share price: €9 (unch)

The emerging market casino operator Queenco, which has been listed in London for a little less than a year, is based in Israel and has its casinos in Greece, Serbia and Romania.

It is asking the market to discount its first-quarter figures, published yesterday, which showed pre-tax profits falling from €12.2m (£9.7m) in the same period last year to €10.6m, due to changes in Greek accounting law.

The company has pencilled in openings in the Czech Republic and Cambodia in the next year.

ING, the firm's broker, says earnings per share will grow by 3.5 per cent this year. But with few direct comparators, it is tricky to ascertain whether the firm is fairly valued. Effy Aboudi, its finance director, says the stock is undervalued. He blames illiquid trading for this.

The group is taking some analysts to Athens next week to try to get them to write independent research. Investors should hold on to see what they say.


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