Wednesday, December 19, 2012

Ansys ( Nasdaq - ANSS ) -- Acquisitions Raise Outlook

Ansys (ANSS $68.00) appears on track to produce good Q4 results.  Performance likely has been impacted by lenghtening sales cycles.  But underlining demand for the company's engineering simulation software products remains sturdy.  The company released its latest version (14.5) in December.  Download activity -- most customers are entitled to product upgrades as part of their original licenses -- exceeded previous levels by a wide margin.  The new version included a wide range of time saving automation features.  The Apache acquisition (2011) has provided a major lift to overall results.  A recent deal (Esterel) promises to deliver material benefits beginning next year.  Ansys has an established record of buying top notch technologies, adding related features, improving the user interface, and expanding the potential market by adding the new line to its worldwide distribution network. 

Profit margins are exceptional, in the 50% pretax area.  Approximately 70% of sales are recurring in nature.  So cash flow is abundant, enabling the company to pay what it needs to in order to make key acquisitions.  Organic growth has slowed due to the worldwide recession.  It now is 5%-10% compared to a more customary 15%.  But acquisitions are reinforcing the uptrend, while making Ansys increasingly protected from competition.  Most end markets remain in early stages of development.  New inventions are likely as time goes by, buttressing the long term outlook.  Emerging markets offer great opportunity, as well.  Above average growth could be sustained well into the decade.

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