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05 Jun 2023
CMD preview: what to expect and how to value catalysts

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CMD preview: what to expect and how to value catalysts
- Published:
05 Jun 2023 -
Author:
Slowinski Stefan SS | Lu Louis LL -
Pages:
17 -
Dassault Systemes to host Capital Markets Day on 9 June
We expect a broad update on DS'' addressable market, competitive environment, end market demand, Cloud evolution and RandD roadmap (as usual). An update on the expected multi-year growth of Cloud Revenue end markets is also anticipated, currently; 23-24% for Industrial / Mainstream Innovation and 13-15% for Medidata / Life Sciences. In line with peers, we would also anticipate a healthy dose of Generative AI infused to the mix. Co. is on track with its approach to the horizon of its prior mid-term financial targets, therefore we anticipate an updated / new mid-term financial target framework that could include an updated capital allocation framework, which we explore within.
Assessing market expectations plus simulations on capital allocation (buybacks, MandA).
Market expectations are for high-single digit organic revenue growth, 60-90bps op margin expansion p/year from 2024 onwards, driving 11% EPS CAGR over the mid-term. Using 2023 as a baseline, consensus expects Dassault Systemes to organically double EPS in 7 years by 2030 (2030 EUR2.41 vs. 2023 EUR1.19). We also explore two simulations on capital allocation in the form of larger MandA (EUR10bn EV, EUR2bn revs) or a EUR5bn share buyback. Both simulations are available for readers'' use to flex assumptions. We estimate the MandA route could add 40c of EPS in FY28 in order to double EPS in 5-years, or 10% EPS accretion from the buyback with 1.0x ND/EBITDA.
Stock has rallied ~15% into CMD. Valuation debate depends on quality premium perception
Prior to mid-May, Dassault Systemes lagged the market (+9% vs. +13% EuroStoxx vs. +27% IGV Software ETF), rallying in the last fortnight (now +25% YTD). The ~30x Non-IFRS P/E is between the 10 and 20-year averages (27/33x) and ~20% below the 3 and 5-year averages. The multiple is discounted vs. own history but we see better opportunities elsewhere in global software (SAP, Salesforce, Alphabet, Oracle)...