Dassault Systèmes: Capital Markets Day Reveals CEO Change, but Digitizing Reality Remains the Focus

Dassault Systèmes’ DSY Capital Markets Day was filled with walkthroughs of the company’s digital twin tactics to stay relevant in the changing world of computer-aided design, or CAD, and product lifecycle management, or PLM. But on top of product strategy talks came news of the company’s appointment of Pascal Daloz as CEO, effective January 2024. Daloz is currently Dassault’s deputy CEO and has been a member of the board of directors since 2020. Current chairman and CEO Bernard Charlès will remain chairman of the board after the transition. Overall, we think the management change will do little to rock the boat in terms of the company’s overall strategy. We reiterate our EUR 37 fair value estimate for the wide-moat name, which places the stock in 3-star, fairly valued territory. For investors looking for entry points into this moaty market long dominated by few players, we recommend Autodesk shares, which we believe are undervalued given our $240 fair value estimate.

Throughout the day’s events, Dassault’s key theme was digital twins and its enablement via the company’s platform approach (serviced by its 3D Experience offering). We agree that Dassault’s platform strategy will help to grow the company’s total addressable market by adding net new functionalities (especially those related to digitizing reality) and incremental value from the connectivity of rich features all within the platform. But, not unusual for the industry, adoption is occurring at a gradual pace. Taking SolidWorks as an example, the CAD engineering software has more than 5 million customers still working on the 2D instance of the software, with about 5% to 6% migrating to 3D instances each year. Because of the gradual shift, we aren’t surprised that Dassault is holding steady on its overall M&A strategy, in which it is acquiring about one startup each month, which we think will enable the company to surpass long-term growth targets.