Dassault analysis: A high price for an unrivalled technology that underpins an entire industry

A great company that escapes the attention of investors and could pocket any competitor? An unrivalled product and market leadership that underpins an entire industry? That's exactly what Dassault is!

What struck me about Dassault Systemes $DSY.PA-0.6% (or DASTY) was how this company managed to mostly stay out of the investors' interest for a long time. I didn't know about it for a long time either. The company was a non-trivial part of Dassault itself, and was made into a separate company so that it could concentrate fully on 3D design software - where it could be relatively easily considered the market leader, by all accounts.

But first, a quick introduction:

Dassault Systèmes is a French software company focused on developing and selling CAD/CAM/CAE software solutions for industrial companies and developers. The company was founded in 1981 by French engineer Francis Bernard and his team of developers.

Today, Dassault Systèmes is one of the world's largest manufacturers of 3D software solutions for industry and research. The company employs more than 20,000 people in more than 140 countries and has more than 270,000 customers.

https://www.youtube.com/watch?v=-hx1CXpqVDQ

Dassault Systèmes offers its software solutions to many industries such as automotive, aerospace, energy, construction and healthcare. Its best-known products include CATIA and SOLIDWORKS.

Dassault Systèmes is a company with a high market capitalization and stable earnings. In 2020, the company's market value reached more than $58 billion. The company has seen steady growth in revenue and profit in recent years.

But the chart is somewhat wild

Why? What is Dassault Systemes so good at? Dassault was clearly the market leader in the 1990s. The company's software was used in the development of seven out of ten new aircraft and nearly 50% of all cars worldwide at the time. Examples of products that were designed this way include the Boeing 777 and the Rafale fighter jet - all of which were designed using CATIA.

However, at this time they were not yet a publicly traded company - this did not happen until the late 1990s, when the company went public and started to do a lot of mergers and acquisitions to ensure its competitiveness.

At the time, it wasn't yet clear whether the whole digital tools thing would win out over things like traditional design. Today, we know. Digital tools have become the gold standard in almost every industry, which is excellent because Dassault went on to develop CATIA and eventually turned it into the 3DEXPERIENCE platform, which connects its various software applications and enables global interoperability and cross-industry collaboration.

https://www.youtube.com/watch?v=K9liz31ZcDY

And this is where we are today. More than 15 mergers and acquisitions later, all of which have improved the company's capacity and products. Many investors have the idea that European companies and investments in them are uninteresting and too traditional monoliths that will go nowhere. However, this is not the case with Dassault. The company is often described as one of the most innovative companies in the world, the best employer and the company with the greatest growth potential.

Q4 2022

The improvement and double-digit earnings per share is particularly impressive in this environment when taken around and around. Its targets for 2023 include a goal of earnings per share of up to €1.2.

Summary from Dassault's results presentation

The company doesn't have high revenue or high growth compared to some companies in the industry, but it makes up for it with incredible know-how and tradition and real leadership in the industry that has endured for decades. I still don't understand why it is so little talked about.

The company's remit can now be found in life sciences as well as infrastructure and other areas. The biggest segments in terms of end-user segments are industrial innovation, life sciences and mainstream software.

Dassault operates with an operating margin approaching 35% on sales in excess of €1.5 billion per quarter. It also maintains extremely conservative financial leverage. This makes it one of the most conservatively valued software companies in the world. The dividend is almost zero. Part of Dassault's problem has been the incredible premium the company has commanded for most of the pandemic.

But the valuation is still extremely high

But the dividend yield is ridiculous. At the current price, you're looking at a yield of 0.46%, which is significantly less than I would like.

But a big part of the company's appeal lies in its growth potential, not its paltry dividend - although analysts expect the dividend could grow.

Dassault Systemes - Valuation is high. But long-term expectations are key here. When to buy such an investment is always a big question. There is no doubt in my mind that the company is attractive. But unfortunately, only if we are very positive in our forecasts will it be worth talking about. That, unfortunately, is usually the price of a good product. A look at the competition does help a bit, but the company is heavily premium to most others, with the exception of companies like Autodesk.

Analysts expect Dassault to be able to grow at least 6-8% in the future - maybe more. Even so, Dassault is not cheap. On the other hand, he has almost never been cheap historically. In fact, the last time the company was "cheap" was during the financial crisis. Even then, it barely hit the 15 times P/E mark, and only for a short time.

But for those investing in technology growth and similar businesses, I'd say you should take a closer look at Dassault - because it may have what you're looking for in an investment.

Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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