The CSU Letter

Aren't these efficient markets?

Another quick post as it seems like the closer somebody is to Constellation Software the less they are willing to talk about it.

Constellation is a fascinating Canadian company with an unparalleled culture that will be a business case study for decades to come. Its stock has increased from $24 in November 2007 to $1665 today. That’s a 38% CAGR + dividends.

Mark’s infamous 2020 podcast that gave a tiny glimpse into his thought process was taken down upon his request and only furthers the legend.

I honestly don’t know how you can go to their AGM and not walkout a shareholder. Mark sits on the stage for hours challenging the audience for harder questions. He loves it. Sitting beside him is a deep bench of incredibly smart and highly motivated team members. It’s top notch.

I think it’s worth mentioning the importance of yesterday’s letter from Mark.

I’ll summarize with my take.

He’s been criticized for years about being too conservative.

Previously, he only wanted the best deals and avoided many less attractive but still value adding deals.

He was wrong. He’s going to start pursuing these value adding deals.

And he’s expanding the TAM to outside of vertical market software.

This is a massive announcement that is incredibly bullish and a pivotal step change for the company.

What does the stock do? +3%.

I have no concern on if CSU will be successful outside of VMS. The core of the company’s value add to acquisitions is aligning incentives (The company is a living version of Poor Charlie’s Almanack). Their process will transfer to other verticals.

CSU is trading today at $1669 with RBC estimating US$54.74 in EPS next year for a forward yield of 4.2%, with no net debt.

It’s hard to see huge downside and now the upside has materially increased.

Disclosure: Long Constellation Software


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