Aveva/Schneider: the UK market’s incredible, disappearing tech sector

Another day, another underperforming UK business poised to succumb to a foreign takeover. France’s Schneider Electric has confirmed its interest in buying Aveva. The horror of protectionists will only be partially assuaged by the industrial software group’s low profile and the fact that the French would-be bidder owns 60 per cent already.

Aveva shares rose by more than 30 per cent, valuing the group at £9bn. Recent performance has been disappointing. If Aveva is bought, the event may be mourned more by patriotic pundits with deadlines than investors with cash on the line.

Aveva is one of the UK’s few big remaining listed technology businesses. But only a tiny fraction of sales originate in the country. That reflects a focus on the world’s energy industry.

The UK listing is a legacy of the company’s founding in Cambridge, where it produced computer-aided-design software. Schneider arrived on the scene in 2018, merging in its own industrial software assets in return for a controlling stake. Since then, the group’s pursuit of a “software as a service” subscription model has rankled with investors.

That ambition has proved to be a double-edged sword. Near-term earnings have fallen as smaller recurring subscriptions replace chunky one-off licence sales. Lost Russian sales and margin-eroding cost inflation have compounded Aveva’s difficulties.

The latest hiccup came in July, when the group warned that annual recurring revenue growth over the previous year was just 11 per cent, well below 15 per cent previously expected.

That helped wipe off almost half the value of Aveva shares over the past year. The stock has underperformed the wider FTSE 350 Software index by almost 40 per cent.

Wednesday’s rise in shares left them at a valuation of 22 times forward earnings. That represents a modest premium to the UK sector but still about a third below the company’s average over the past five years. Amid a global technology rout and looming recession, shareholders may not be able to do very much better than that.