Constellation Software Inc. (CSU.TO)

A fabulously run company. A great case study if you want to study how a company can grow through acquisition. When they started off, the idea was to buy companies between $5-$7 million. They focused on smaller companies, because in that way they were not competing with private equity. However, today the company is a $13 billion company, and they are still going after these small $5-$7 million companies. If it pulled back, he would consider buying it then.

We should see it fall back due to it getting to the end of the period of seasonality. He would put a stop in place. It was going down then the market is going up.

Recently added to his position as it broke through previous resistance in the high $500s. This has been the best performing stock on the TSX over the past 10 years. Their compound average growth rate of the stock price has been over 40% during those 10 years. Feels management are among the top 5 capital allocators in Canada. They feel there are more Canadian software companies that they could take over. Also, owns their debenture, and the interest rate is tied to inflation, so it is at 6.5% plus the trailing CPI.

(A Top Pick Jan 15/16. Up 17.36%.) This has been one of the greatest stocks in Canada over the last 10 years. They haven’t issued any more shares. Earnings have gone up tenfold. They’ve done great acquisitions. They have 100 people dedicated to acquisitions full-time in software.

(Market Call Minute.) You can’t bet against this company. One of these days they won’t find deals to do, but a very high quality company with lots of return on invested capital.

This has been a very interesting company over the years. It is one of the companies that has progressed on a rollup strategy through acquisitions. You have to give them credit for having made some very, very sharp purchases. Multiples are sort of dependent on that growth continuing. As a value investor, these are very difficult companies for him to Buy, because the multiple on the growth aspect is far ahead of the immediate fundamentals that underlie the earnings. Not one that he would purchase.

(Market Call Minute.) Their earnings are coming out right away and it will be interesting to see what happens. He likes it.

This buys other software companies, and are now at the scale where they are really well diversified. Feels management is top in class if not the best management team in Canada. Excellent allocators of capital. They are in a whole slew of verticals. Very disciplined in terms of their acquisition strategies. Have just gone through a period of consolidation, and look to be set to head to new highs. Dividend yield of 0.89%

The CEO is right up there with the top capital allocators ever. He’s done a remarkable job of growing the company, and using free cash flow for making more and more software acquisitions. They essentially own companies that have a lot of service and annuity revenue. The free cash flow comes back into that office, and they go out and buy more. Too expensive for him. Thinks the big run is over.

He likes it. $400 model price, but they could do a lot of things to increase the model price, such as a stock split.

This has done extremely well. The 5-year chart shows a big range, and right now he is just neutral. The stock is not hanging around its highs. He suspects there will be some sellers coming in. It might have good support at around $380-$400, but then you have resistance from $500 and up with a very, very slight bearish bias.

Who do you like in Canadian Tech? As a value investor, he may like a Canadian Tech company, but may not be able to buy it because of its valuation. Two that stand out are Constellation Software (CSU-T) and CGI Group (GIB.A-T), and CGI is probably selling closer to reasonable multiples. Both are extremely well-managed. He also likes that they are both much more software dependent, not mixing any hardware which can be so fickle in today’s technology market.

Probably the best managed company in Canada. Strong on return on equity. One of his larger positions. Own it forever. There is still a lot of runway for them.

A well-run company and the CEO has created an unbelievable free cash flow machine, buying up software companies and having annuity revenues, and using the free cash to continue to buy more, etc. They now have a suite of thousands of companies and are on the hunt to buy more. This is on his radar screen, but he just can’t stomach buying it at this valuation.

(A Top Pick Feb 5/15. Up 41.69%.) Thinks they are shifting from a lot of little acquisitions to some really big ones that will come in once or twice a year. He continues to love this.