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Monday, June 10, 2013 by Christoph.Schmid|Comment 0
within category Cloud,Technology II,European Capex Winners,3-D Printing,Dassault Systems,DAST
Introduction:
Dassault Systèmes, based in Vélizy-Villacoublay, France, is a market leader in providing 3D computer aided design (CAD) and product lifecycle management (PLM) software. Dassault’s innovative products support businesses and people in designing valuable innovations in virtual environments, extremely quickly and cost-efficiently.Its products are used by a broad range of industries and customers including a) aviation (Boeing, Airbus), b) automobile (BMW, Toyota), c) telecommunications (Nokia), d) consumer goods (Nestle, Protector and Gamble), and e) industrials (General Electric, Rio Tinto). Across the world, about 10 million people use one or several of Dassault’s services or products. Customer loyalty is very high because their products perform so highly, and because the company is so responsive to its customers’ requirements.  

The company is currently driving forward with a comprehensive and rigorous expansion strategy. On average, Dassault launches one new product and/or proceeds with an acquisition per month. Recent acquisitions include Gemcom, Netvibes, ScquareClock, Apriso, and Simpoe, and although these are all smaller companies or start-ups, they have helped drive Dassault’s long-term organic growth.

Under the company’s present management, the development of their 3D offering has been driven forward. The firm also commits significant capital to R&, to drive organic growth. This trend is supported by an almost unique ability to network and collaborate with high schools, colleges and other academic institutions. 

Strengths and weaknesses analysis / Fundamental analysis 
Strengths:

  • The company’s top-line products are well-positioned and will grow in the low 10th in the next 4 to 5 years,
  • The company offers users the possibility of migrating to a cloud-based solution over time. This applies in particular to products such as 3DSMWYM, EXALEAD, and NETVIBES which offer users tools for social, information and dashboard applications and intelligence,
  • The long-term target operating margins have been increasing constantly and are expected to reach the mid 30th level by 2016,
  • Product adaptation is very high and therefore customer loyalty is strong. This in turn reinforces the company strategy of focusing on recurring revenues instead of one-off sales,
  • Earnings visibility is high, therefore the risk/reward is attractive,
  • The company has developed a strong network with the academic world.

Weaknesses:
  • The company’s flagship products (SolidWork and CATIA) account for more than 60% of group sales,
  • 45% of revenues are from European based businesses; should the weak economic outlook persist in Europe, Dassault could suffer more than its direct competitors such as Autodesk, and Ansys,
  • Dassault is market leader in PLM, an area with many new entrants. Greater competition will inevitably erode market share and later on profitability,
  • Integration issue: a mismanaged acquisition could weigh on development performance for one complete business cycle.

Investment opportunity / Portfolio management 
Operational risks: Well below average 
Expected growth: Above average
Investment orientation: Group “Best-in-Class” investment theme: Technology II, European Capex Winners, 3-D Printing

Abbreviatons:
PLM:  Product lifecycle management : Explanation
CAD: Computer Aided Design Explanation

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