AI And Digital Twin Innovations Propel Infrastructure Analytics To New Heights

Key Takeaways

• Leveraging AI in asset analytics for digital twin cloud services and infrastructure monitoring promises significant future revenue growth through technological innovation.
  
• The shift towards subscription models and strategic investments in AI and product development underpins a focus on long-term growth and operational efficiencies.
  
• Geopolitical tensions and reliance on public infrastructure projects pose significant risks to revenue, especially with uncertainties in AI adoption and U.S. market legislation impacts.

Catalysts

Provides infrastructure engineering software solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific.

• The asset analytics initiative is expected to significantly contribute to ARR growth, leveraging AI to provide insights from digital twin cloud services, thereby influencing both revenue and earnings growth.
  
• Expansion into AI-based solutions, particularly in asset analytics for infrastructure, offers a major incremental revenue opportunity by transforming asset monitoring across various industries, positively impacting future revenue growth.
  
• Strategic focus on subscription models, with subscription revenues surpassing 90% of total revenues, ensures consistent and predictable revenue streams, positively affecting net margins.
  
• Investments in AI and product development, despite current profitability, demonstrate a long-term growth strategy that could lead to higher margins through enhanced product offerings and operational efficiencies.
  
• Geopolitical stability and bipartisan support for infrastructure investment in the US, regardless of election outcomes, suggest sustained demand for Bentley Systems' offerings, underpinning stable future revenue growth.

Assumptions

• Analysts are assuming Bentley Systems's revenue will grow by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 29.2% today to 21.1% in 3 years time.
• Analysts expect earnings to reach $391.8 million (and earnings per share of $1.2) by about August 2027, up from $375.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 60.7x on those 2027 earnings, up from 41.6x today. This future PE is greater than the current PE for the US Software industry at 37.0x.
• Analysts expect the number of shares outstanding to grow by 1.32% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.77%, as per the Simply Wall St company report.

Risks

• The heavy reliance on public works/utilities and infrastructure projects could pose a risk if there's a significant shift in government policies or priorities, potentially impacting revenue growth.
  
• Geopolitical tensions and the specific mention of challenges in China suggest a risk of reduced growth or revenue in significant markets, possibly affecting overall ARR and net margins.
  
• The roll-out and adoption rates of AI-based solutions and asset analytics as a new revenue stream might not meet expectations, which could impact revenue diversification and future earnings growth.
  
• The emphasis on the U.S. market and infrastructure investment tied to legislation like the IIJA could face risks if there are delays or reductions in planned spending, potentially impacting projected ARR growth and profitability margins.
  
• Any changes in the macroeconomic environment affecting interest rates and the availability of private capital for infrastructure projects could slow down investments, thus impacting demand for Bentley's services and software, subsequently affecting revenue and earnings.

Valuation

• The analysts have a consensus price target of $59.4 for Bentley Systems based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $64.0, and the most bearish reporting a price target of just $45.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.9 billion, earnings will come to $391.8 million, and it would be trading on a PE ratio of 60.7x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $49.25, the analyst's price target of $59.4 is 17.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.