Andrey Omelchak Constellation Software Inc. CSU-T BUY Sep 10, 2024

Very aggressive M&A strategy. Some of the best capital allocators in the business. Optimizes costs in acquisitions to increase margins, but doesn't necessarily invest in growth. So organic revenue has struggled, and we need to analyze how long this will last. Vertical synergy strategy works well.

Key metric to look for is reacceleration of organic revenue, rather than just M&A revenue.

Utmost confidence in management. Massive compounding shareholder value over time. Recent results were good. Behind the pace on M&A goal for the year. Could be getting lost amidst AI-driven stories. Vertical markets mean its organic growth rate is low.

He continues to be long and strong, not concerned by recent pullback.

The challenge he always had with CSU is the continuous rush to buy small companies that don't add value. He wants to see spin-outs and silos to get rid of non-core businesses.

Loves the business model. Management is phenomenal. Concern is valuation at high 20s free cashflow multiple, which implies earnings yield to shareholder of 3% and change. Based on its size, how many more acquisitions can it make to move the needle? As a value manager, hard for him to buy.

He entered at $1,000, so is pleased. Software is a good business--don't need business or computers, just the code. The valuation remains cheap. Good management and fundamentals. He see many years of acquisition growth. Is a core holding.

Quite volatile chart, but you can deal with that if you have it in the right (low, perhaps 1.5-3%) weighting in your portfolio. He'd definitely step in again today, as it hasn't participated in the recent rally.

Huge fan. The downturn is a blip and a major buying opportunity. The market misperceives that AI will hurt vertical market software companies. No, it's the complete opposite whereby these companies will benefit from AI a lot. You can't displace these companies easily. We will see serious margin expansion and an uptick in innovation.

We would not rule the company out, certainly. It knows its space and of course its historical record is impressive. It will not just sit around and watch AI. The company plans an update next week which we will attend, to discuss its AI initiatives and opportunities, as well as risks. We would give it a 7/10 for a buy rating right now. There are always risks, but the negative sentiment shift has been greater than the fundamental shift here, at least so far.
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Down ~20% from highs (very rare occurrence), and that's the beauty of it. Acquires vertical integration software niche to a particular industry. Notoriously low-key, but holding a conference call September 22 on AI risk/opportunities. Pullbacks in this name are always buyable, as 2 decades have shown. Yield is 0.13%.

Probably the best company in Canada over the past 20 years. Everyone had a complete freak out because stock was down 1%. In entire history, it's only been down once on a calendar year. Likes to acquire, but has tight criteria including not overpaying.

Concern that will suffer from AI. But company is not just sitting around. Doesn't do conference calls because track record speaks for itself, but next Wednesday is a conference call to address AI challenges and opportunities. They know what they're doing. And now the stock's cheaper.