Equity Research Dassault Systems

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DASSAULT SYSTEMES (DSY)

Based in France, Dassault Systeme develops and provides computer-aided design (CAD) software solutions and solutions
worldwide for its industrial clients. All of its solutions are gathered in a cloud-based environment connecting several software
solutions for different areas (the 3DExperience platform): Industrial innovation Life Sciences and Mainstream Innovation.
In FY2019, DSY sales increased by 16% to €4 Bn, driven by the performance of its 3DExperience platform, as strong results come from software sales (Licenses and subscription) segment reaching over €3.5 Bn (15% growth y/y), accounting for 88% of its total revenue. Consequently, the firm’s ability to generate strong margins over the years, with steady increase, as both operating and net margin account for 22% and 15% respectively. In Oct 2019, DSY acquired Medidata (life sciences tech company) for $6 Bn, provider of a cloud-based solutions. A way to strengthen its portfolio in the life sciences industry, boosting innovation in various field from medical devices to biotechs, focusing on delivering strong patient-centric experiences.

FY2019 being a record year for the firm, DSY reported revenue up 10% y/y in its Q2-20 quarterly earnings. Indeed, total sales of €1,06 Bn (vs €961 M prior year) mainly driven by its 3DExperience platform, as quarantine and social distancing measures, have increased the need for its clients with the goal to effectively manage the manfucaturing process and ways to strengten those firms business model during this tough period. In addtion, with the acqusition of Medidata, integrating into its life sciences software portfolio, which is growing at a faster pace (up 75% y/y), have tremendous perspectives / business opportunities (covid-19 and the race for a vaccine) with steady demand (customer base grew by 17% q/q) for top pharmaceutical companies towards leveraging data, analytics and improving the performance of clinical trials. This momentum will pursue over the next quarter with revenue expected for Q3-20 to €1.1 Bn (and over €4.1 Bn expected for the FY2020), and the improvement of both operating and net margin.

With net debt increasing (to €3.2 Bn), the focus is put on investing onto its main software business through the integration of small and medium tech companies, revolving around data analytics software giving strong insights (customer and business wise). The strengthening of its core business via several acquisitions strengthening its software portfolio used in different industries: accounting for FY2020 Proxem, a French artificial intelligence-powered software developer and provider of customer experience analysis solutions. A clear goal to improve its 3DExperience platform and strive towards the highest margins.

SHARE PRICE – Since January 2020, the stock gained 9%. The share price (30/09/2020) closed at €159.75 per share.
A stock pushed by strong results and higher demand for its software solutions given the market conditions and high demand from top industrial firms. This strategy focusing on maintaining its momentum with its 3DExperience platform, gathering its solutions for business and with the expectation to reach over €4.1 Bn in net sales (3%-5% growth for FY-2020) and keeping a 20% in operating margin (to €800 M). As such, shares that will likely move at its own pace around €165 per share.

Written on 01/10/2020

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