Dassault Systèmes: The Dassault Systèmes economic model remains as solid as ever, the stock market appreciates

(BFM Bourse) – The professional software publisher is at the top of the CAC 40 this Wednesday after publishing results above expectations in the third quarter and delivering a reassuring message for the future.

The results season is currently rather mediocre on the CAC 40. Both LVMH, L’Oréal, Kering and Worldline (whose shares plunged 57% this Wednesday) have disappointed expectations. But some good surprises are also emerging, like Publicis last week or Hermès on Tuesday.

Dassault Systèmes clearly finds itself in this second category. The publisher of computer-assisted design and manufacturing software (Catia, Solidworks) sits imperially at the top of the CAC 40 this Wednesday, with its share price jumping 8.6% around 3:30 p.m., after excellent results, especially in view of of the current macroeconomic context.

In the third quarter, the company saw its turnover increase by 11% excluding currency effects to 1.42 billion euros.

. According to a consensus cited by Stifel, analysts only expected revenues limited to 1.41 billion euros.

>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio

Licensing speeds up

Above all, license sales, an indicator closely followed by the market and by analysts, experienced a significant acceleration, with growth of 20%, compared to 6% in the previous quarter.

Their growth also exceeded the group’s forecasts, which expected an increase of between 6% and 10% over the quarter.

All this overshadows Medidata’s new sluggishness, which had already disappointed the market when it published its second quarter results. This company acquired by Dassault Systèmes in 2019 specializes in life sciences, particularly in data produced by clinical trials (according to Dassault, 40% of clinical trials worldwide rely on Medidata).

This company only posted mid-single digit growth in the third quarter, Dassault Systèmes said, around 5%. “As mentioned in the previous quarter, activity is “affected” by a drop in clinical study starts across the industry compared to very high post-Covid levels as well as by a significant base effect compared last year and the previous quarter,” Dassault Systèmes explained.

In terms of other account lines, the operating margin stood at 31% in the third quarter compared to 31.6% a year earlier due to negative exchange rate effects. This profitability rate surprised the expectations of analysts (who expected a rate of 30.4%) and that of Dassault Systèmes which predicted a margin between 30.2% and 30.5%.

Earnings per share stood at 28 cents, up 20% year-on-year, excluding currency effects, compared to 27 cents expected by analysts.

A somewhat relieved market

In terms of outlook, Dassault Systèmes expects for the fourth quarter revenues of between 1.637 and 1.677 billion euros, a margin of between 35.8% and 36.6% and earnings per share of between 35 cents and 37 cents. . For the full year, turnover is expected between 5.945 and 5.985 billion euros, the margin between 32.3% and 32.6% and earnings per share between 1.19 euros and 1. 21 euros.

“The group posted an excellent commercial performance in the third quarter, which confirms the 2023 objectives and allows it to integrate a more cautious scenario in the fourth quarter”, appreciates Invest Securities which considers the publication “particularly reassuring”.

“The stock had fallen significantly ahead of the publication because some investors feared that the macroeconomic context which is not flourishing would be reflected in the figures of Dassault Systèmes. It is therefore very reassuring to see these good figures for the third quarter, coupled good prospects for the fourth”, explains Nicolas David, analyst at Oddo BHF.

“Additionally, management’s Q4 speech was reassuring on the outlook for Medidata (life sciences company which represents approximately 20% of revenue) and China (approximately 8% of revenue ) which were the two areas of concern over the last 12-18 months. We have the feeling that the hardest part is behind them,” he explains.

The smooth transition

These robust figures should also at least temporarily dispel market doubts about the transition that Dassault Systèmes is making on its revenues.

“Dassault Systèmes has been implementing a model change for about a year, switching to a subscription model. This migration may weigh on growth in the short term, because this model does not involve large upfront payments (” upfront”) but a subscription paid every year”, explains Nicolas David. “Which means less revenue recognition in the short term but more in the long term with more recurring revenue. As opposed to the licensing model, where a customer pays for access to the initial software. And then they only pay each year maintenance which represents around 20% of the cost of a license”, he continues.

However, “what we see is that Dassault Systèmes is managing this change of model well and fluidly, thanks to a cautious and progressive approach, since their short-term growth remains solid”, appreciates the analyst.

Note that Bernard Charlès, the group’s CEO, who will also pass the baton to Pascal Daloz next year, cited generative artificial intelligence among the opportunities available to his group. “We will continue to expand what we started 15 years ago” with artificial intelligence, explained the manager. The group will continue to use AI to complement “modeling, simulation and data science,” he continued.