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Constellation Software: Cautious Approach To A Legendary Company

Nicoper Research profile picture
Nicoper Research


  • 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.

Communication network above Earth for global business and finance digital exchange. Internet of things (IoT), blockchain, smart connected cities, futuristic technology concept. Satellite view.

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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

Constellations portfolio industry segmentation

Constellation Portfolio Industry Segmentation (Constellation Software Website)

Profitability results

Profitability Results (Author's Calculation)

Organic revenue growth

Organic Revenue Growth (Constellation Annual Report)

Quarterly result overview

Quarterly Result Overview (Constellation 2021 Results)

Constellation Software Current Liabilities

Constellation Software Current Liabilities (2021 Shareholders Report)

Expected Revenue

Revenue vs Prior Year Implied Revenue (Author's Calculations)

Constellation Software CSU Revenue Historical

Constellation Software Revenue Development (2011-2021) (TIRK.com)

Operating Income EBIT Development

Operating Income Development (TIKR.com)

Sales to capital and amortization rates

Sales to Capital and Amortization Rate (Author's Calculations)

Cost of equity

Cost of Equity (Author's Calculation)

Cost of capital

Cost of Capital (Author's Calculations)

Terminal value assumptions

Terminal Value Assumptions (Author's Calculations)

After tax operating income forecast

After Tax Operating Income Forecast (Author's Calculation)

Free Cash Flow to the Firm forecast

Free Cash Flow to the Firm Forecast (Author's Calculation)

Discounted Cash Flows

Discounted Cash Flows (Author's Calculation)

Assumption ranges used in simulations

Assumption Ranges Used in Simulations (Author's Calculation)

Simulation results

Simulation Results (Author's Calculation)

Simulation Summary

Simulation Summary (Author's Calculation)

Constellation Software price target

Constellation Software Analyst Targets (TIKR.com)

This article was written by

Nicoper Research profile picture
Non professional individual investor intrigued by intrinsic valuation. Studied quantitative finance, holder of Financial Risk Manager (FRM) certificate, working in a large European bank, but learned the most about investing from books of Benjamin Graham (human psychology never changes), Seth Klarman (market is irrational sometimes) and Aswath Damodaran (connecting stories and numbers). Started investing in developing economies in Europe almost ten years ago, survived one horrible market crash of 2020 and now mostly focusing on EU, Canada, Australia, New Zealand and USA. My goal is to invest in temporary undervalued companies that have predictable and at least average or above average medium term prospects, ultimately ensuring safety of my principal investment and satisfactory return. Apart from exclusive articles on Seeking Alpha, you can also read about what I do on my substack https://nicoper.substack.com

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in CNSWF, TOITF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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