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Company: ANSYS (ANSS)
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  Simulation software demand rising as way to reduce R&D costs

Increasingly, companies are looking to simulation software in order to test products before manufacturing them as a way to reduce R&D costs.

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  Great financials

Ansys has generated more than $103 million of free cash flow in the last 12 months. Based on its current enterprise value of $2.9 billion, Ansys is generating a free cash flow yield of 3.5%, slightly less than the yield on five-year treasury securities.

According to Zacks Investment Research, the consensus five-year earnings growth estimate is 18% per year, which compares to 11% actual historic market growth and a 13% theoretical sustainable growth rate (equal to the average ROE since there is no dividend.)

I think sales can grow 15.7% in 2008 and 15% in 2009, which should generate nearly $130 million of free cash flow in 2008 ($1.60 per share) and $160 million in 2009 ($2.00 per share). At that time, assuming a 100% required return premium to treasuries and a 4% terminal growth rate the company could be worth $3.7 billion, or approximately $46 per share. I further believe they would have $4 per share in net cash by that time for a total potential value of $50 per share and total potential cash on cash return over the 2+ years of 30%. Discounting the cash flows to the present at a required return of 8.5% generates an estimated current intrinsic value of $46.00 per share, from which the current price represents a 20% discount.[1]

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  Leading provider of 3D simulation software for the engineering market

Leading provider of 3D simulation software for the engineering market. Expands the functionality of traditional software offerings from Autocad, Dassault, etc.

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  Aggressively expanding with new clients and into new verticals

Aggressively adding new clients, expanding functionality in existing accounts, and into new verticals.

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