(I) Constellation Software: Cautious Approach To A Legendary Company
My initial Constellation Software valuation attempt
Summary
Constellation Software recently released its annual report.
At first look, results seem to be below what its shareholders are used to.
Using my previous valuation of its subsidiary, Topicus, calculation of fair value of Constellation shows interesting results.
Given current market volatility, Constellation is close to its buy point even for a conservative investor.
Investment Thesis
Constellation Software Inc. (OTC: OTCPK:CNSWF), or Constellation, is one of the most successful holding companies in the recent corporate history of the western world. Since its founding, it adhered strictly to its philosophy of acquiring small vertical software companies in diversified areas. Always focusing on sustainability and historical and prospective profitability of their acquisitions, they had one of the longest streaks of value creative acquisitions. The only obstacle in their future growth is their past success. After 25 years and its incredible growth, Constellation is facing a challenge, albeit not immediate, of starting its expansion into new business areas. Analysis shown here will examine the risks of investing in Constellation at current prices and this analysis will explore.
This results in a median present value per one share of CAD 2,496.18. Which is above current market price. However, only by some 15%. To put it in a different perspective, if you agree with my FCFF estimates, current price would yield an implied return of 7,65%.
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