EUR 850.00 For Business Accounts Only

Morningstar | Dassault Adds Airbus to Premier Platform; Remains in a Strong Position; Shares Overvalued. See Updated Analyst Note from 06 Feb 2019

Dassault’s fourth-quarter results slightly outperformed both our top- and bottom-line expectations. It was the company’s first ever EUR 1 billion revenue quarter and represented healthy continued demand for the firm’s 3D design and management software. Dassault announced that Airbus had selected the company’s 3DExperience platform for its multiyear digital transformation initiatives. The deployment roadmap will be across 2019 to 2021 and we believe the agreement is significant twofold. First, Airbus provides Dassault with a premier and large-scale aerospace & defense client that we expect to be very sticky. Second, the Airbus agreement follows Dassault’s significant 2017 contract with Boeing and embeds Dassault as the aerospace & defense industry’s top-tier technology provider. Such market success reaffirms our belief that Dassault benefits from a wide economic moat. As such, we see broad-based long-term growth tailwinds for the firm and forecast high-single-digit to low-teens revenue growth and low-teens EPS growth over the midterm. After accounting for the quarter’s slight outperformance, and new fiscal 2019 guidance, we raise Dassault’s fair value estimate to EUR 86 from EUR 81 (to $98 from $94 including an updated USD/EUR rate for the ADR). Despite the firm’s ongoing success, we believe investors are being asked to pay an exorbitant premium to acquire Dassault. Therefore, we’d suggest a wider margin of safety before committing any new capital to the name.

For the quarter, IFRS IAS18 revenue rose 14% year over year to EUR 1.04 billion (increased 13% in constant currency). In constant currency, software revenue grew 11% and services revenue swelled 32%. The services performance represented a recovery in the back half of fiscal 2018 and was supported by strong demand for Dassault’s 3DExperience’s services.

In terms of the firm’s important next generation 3DExperience platform, we were encouraged to see such strong activity given its stickiness. Fourth-quarter 3DExperience software revenue grew 33% in constant currency, while 3DExperience licenses surged 45%. Notably, Airbus, Safran Nacelles, and Naval Energies added Dassault’s platform in the quarter.

Non-IFRS IAS18 operating margin slipped 120 basis points in the fourth quarter to 37.4%. However, the margin was slightly better than we expected, and the full-year margin came to 31.8%, which was a little ahead of our 31.5% estimate. We continue to forecast modest yearly margin expansion and see fiscal 2019’s non-IFRS margin being around 32.2%.