Q-Cap
Financial Satire & Grift Detection
Constellation Software is a good opportunity in a market said to have none, because it has doubled free cash flow available to shareholders while its market cap has gone nowhere. x.comÂ
Constellation Software offers the same growth rate as ServiceNow at half its multiple when ServiceNow's after-tax stock-based compensation is factored in. x.comÂ
Constellation Software's Sabre deal is one of the dumbest capital allocation decisions in years, enough to reverse a fresh view on the stock in under a month. Constellation should be buying smaller, solvent companies. x.com x.comÂ
Constellation Software is finally at a fair valuation, making it a good time to accumulate. It has three big opportunities: new types of investments such as small stakes in public companies, adding AI to its thousands of software products at little extra cost, and buying small software companies in Asia and other less competitive regions. x.comÂ
Constellation Software and its spin-offs Lumine Group and Topicus.com are among the few software companies run for shareholders' benefit, which assures a good outcome if they are bought at modest valuations. Under 20 times earnings is reasonable, but no more. x.com x.comÂ
Constellation Software has no way to benefit from AI and little organic growth, so 21x GAAP EBIT looks fair, with perhaps a downside skew if churn rises across its portfolio in the next five years. The market's negative reaction is rational. Its small vertical software businesses were run financially rather than for product, many still on-prem, with no central AI strategy as software gets cheaper to build. Organic growth was 2% in constant currency; inorganic growth is fundamentally different. … Show more
The Constellation family, Constellation Software, Topicus.com and Lumine Group, is still due for a rerating as the market's fear about AI gives way to the opportunity. The market has already misread AI's impact on Google, Meta, ServiceNow, Salesforce, CrowdStrike and Palo Alto Networks; in each case the fear was priced in long before the opportunity was understood. x.comÂ
JPMorgan looks remarkably cheap against nearly every other bank despite being the best of them. Its forward P/E looks to be around 13. x.comÂ
Canada's major banks, TD, Royal Bank, BMO, Scotiabank and CIBC, deserve a slight premium to US banks, but it has stretched way too far, with price-to-book almost double. @TheWiseIC expects the gap to close through Canadian banks rerating back to normal multiples. x.comÂ
Bending Spoons' growth is bought on credit, while Constellation Software can deleverage quickly, and valuations should eventually reflect that. Both grow just 3-5% organically, and Bending Spoons' organic rate halved twice (13% to 6% to 3%). Yet Bending Spoons trades at 19x FY25 sales versus 3.8x, with net debt at 3.1x revenue versus 0.2-0.4x and interest at 11% of revenue versus 2.6%. Bending Spoons needs the next deal to pay for the previous one. x.comÂ