Software firm impacted by global events

By Graeme Dickson
Updated: 13:58 EDT, 23 March 2011

A stock which might be on the cusp of a change of fortunes (at least on the stock market) judging by recent technical developments is that of engineering software company Aveva (AVV):

As can be seen from the above chart, the company has benefitted from the expansion of the oil, power and plant industries over the last year, the sectors that it primarily serves.

However, recent world-shaping events, has given rise to a dead cross forming, in this case where the 20 day exponential moving average has intersected to the downside with the 50 day exponential moving average. This might merely be a blip before the company resurrects the uptrend, or it could be the signal of a reversal of trend.

The company said in late January that trading is in line with its expectations, as strong demand from oil and gas markets in Asia and Latin America offsets tougher trading in North America and parts of Europe.

The firm also said it has won a number of contracts in recent months for its key Aveva Net product, a data viewing platform which allows engineers to monitor systems in real time.

The analysts' forecasts for Aveva suggest that profit for the year ending 31 March 2011 should come in at £53.8 million with revenue of £165.6 million placing the company with earnings per share of 55.4p.

This puts the company on a price to earnings ratio of circa 28 times, which seems a tad rich for the £1.08 billion company, even if you take into account its net £140 million net cash position.

A word of caution for any potential short-seller here is that a number of analysts expect this company to get taken over at some stage, so this is not for the faint hearted.

Also, like a few of the sells recommended recently, although the direction of the idea has often been accurate, timing is more difficult to predict and I would not be surprised to see this higher before it starts making new lows.

Resistance should kick in circa 1740p while support should be seen initially at 1400p.

Update

Talvivaara Mining (TALV) – suggested to sell at 511.5p, the stock bounced to 554p along with the rest of the mining sector. Hold for now but if it closes above 577p cut the position.

Keller (KLR) - suggested to sell at 620.5p – the shares closed at 629p yesterday. Hold for now but keep the stop based on a close above 640p.

Tui Travel (TT.) - suggested to sell at 237.1p, the shares closed at 228.2p: keep the stop based on a close above 245p.

Kazakhmys (KAZ) - suggested to sell at 1448p. The stock closed yesterday at 1370p, a far cry from the intraday low set last week at 1230p. Take profits as the company is scheduled to report its preliminary results on 29 March.

Mitchells & Butler (MAB)330.8p – the stock reached the price objective of 290p and should have been closed for a gross 12.3 per cent profit.

Debenhams (DEB) – suggested as a sell at 67.15p, the stock reached its price objective of 56p last week and should have been closed for a gross 16.6 per cent profit.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Sharescope.