Ansys grew its revenues by 78% in 2006, partly on the back of its acquisition of Fluent. It is guiding for another 37% in 2007, no acquisitions necessary. Dassault should profit from the strong industry growth as well.
Simulation software is an advanced engineering tool that formerly required high-end computers available only to senior engineers. One of the benefits of the vicious price environment for computer hardware is that the simulations can now be run on inexpensive equipment by any engineer. This is cutting the time and cost to develop all sorts of new products, and creating a much larger potential customer base for Ansys and Dassault. This is not a short term trend.
Looking over the earnings report we found little to criticize. The company implies that investors should ignore the write-off of in-process research and development costs incurred as part of the Fluent acquisition, but there are pretty good reasons to do so - at least in terms of estimating sustainable income.
The acquisition also resulted in 632 million of intangible assets, which now make up the vast majority of the company’s total assets. Tangible book value is negative. But this is a software company, and earnings and cash flow are more indicative of the company’s value than tangible assets.
So we’ll go ahead and pick at these nits, but they don’t lessen our admiration of the company or the industry.
ANSS 1-yr chart: