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R&D-driven, potential in international markets.

  • 21 Feb 17

A small software editor with a wide product portfolio. IGE+XAO is a software provider of electrical CAD (Computer Aided Design), PLM (Product Lifecycle Management) and Simulation software. In 2015/16 (ended 31 July 2016), IGE+XAO had revenue of €28m (+3%) and had sold more than 86,400 licences (>40,000 users) in the world. IGE+XAO is a small international group with 19 commercial subsidiaries in 20 countries, 11 technology partners and 37 business partners in 32 countries. IGE+XAO has a small market capitalisation, c.€120m currently (EV/Sales 2017E: 2.9x, EV/EBITDA 2017E: 12.1x), substantially below Dassault Systèmes which is specialised in mechanical CAD/PLM software, €19.6bn (EV/Sales 2017E: 5.4x, EV/EBITDA 2017E: 16.5x). Electricity has been the most important source of energy for the manufacturing industry and electrical CAD solutions are essential to design and manage the electrical plans of their electrical installations and embedded electrical devices in vehicles. IGE+XAO is n°1 in France with a market share of around 70% (company’s source) and amongst the three main electrical CAD/PLM providers in Italy, Denmark, the Netherlands, Belgium and Poland. Conversely, the group is a small player in the German market. In electrical CAD/PLM software, IGE+XAO is the unique “pure player” with a product portfolio covering the whole of the electrical CAD market (industrial installations/machines, aircraft/automotive/trains/ships, building). IGE+XAO is benefiting from its strong positions in electrical design and data management. These are not areas for the launch of new products in the short term. Conversely, the group’s target is to improve its offerings in PLM, system design and the simulation/diagnosis and to develop communication tools with other existing software such as mechanical CAD, ERP, PDM software. Therefore, the medium-term target is to maintain R&D expenses at the current level of around 25% of revenue. More international in the future. Revenue growth (+5%/year on average in 2011-16) is based on organic growth and acquisitions. The latest operation took place in April 2014 with the purchase of 80% of the shares of Prosyst. IGE+XAO is mainly involved in Europe (90% of revenue in 2015/16 excluding the large accounts). Large industrial accounts (Airbus Group, Alstom, Embraer, Schneider Electric, Renault amongst others) which need complete and sophisticated software, maintenance and a large content of services represent a significant part of the group’s activities (30% of revenue in 2015/16). The target is to increase revenue in international markets through the creation of new commercial subsidiaries (India in 2017, Japan later), the development of sales networks and the signature of additional technical and commercial agreements with software editors, manufacturers of electrical equipment (such as those signed with Schneider Electric, Weidmüller) and services companies. The stock is an Add recommendation with an upside of c.16% (target price: €98/share) and is undervalued based on most metrics. There is growth potential in international markets and R&D should continue to sustain the development. The business model includes a high portion of recurring revenue, a high EBITDA margin and generates strong cash flows.


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