Constellation Software Inc

Constellation Software Inc (TSX: CSU) is a software & computer services group, which is engaged in the business of developing, installing and customising of software through acquiring, managing and building VMS (vertical market software) businesses. The Group has divided its operations into two reportable segments being private sector and public sector. CSU offers its products and services to customers from various sectors such as community care, home care, notaries, hospitality, textiles and apparel, auto clubs, tour operators, drink distribution, credit unions and communications.

Financial Highlights – Q1 Financial Year 2020 (31^st March 2020, USD, million)

(Source: Quarterly Report, Company Website) 

In the first quarter of the financial year 2020, driven by an increase in the revenue from all sources for the period, the revenue increased to USD 953 million as against USD 819 million in Q1 FY2019. The group’s operating expenses increased to USD 810 million in the first quarter of the financial year 2020 versus USD 715 million in the first quarter of the financial year 2019. Due to an increase in the operating and non-operating expenses for the period, the group’s pre-tax income stood at USD 115 million in the first quarter of the financial year 2020. Due to higher tax expenses for the period, the group reported a Net Income of USD 83 million in the first quarter of the financial year 2020 versus a net income of USD 87 million in the first quarter of the financial year 2019. The basic and diluted earnings per share stood at $3.91 in Q1 FY2020 versus $4.09 in Q1 FY2019. The cash balance as on 31^st March 2020 stood at USD 364 million as against a cash balance of USD 316 million as on 31^st December 2019. The total assets as on 31^st March 2020 stood at USD 3,577 million as against total assets of USD 3,488 million as on 31^st December 2019.

Share Price Performance

Daily Chart as of 5^th June 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Constellation Software Inc shares closed at CAD 1,499.44 at the time of writing after the market close on 5^th June 2020. Stock's 52 weeks High is CAD 1,637.10 and Low is CAD 1,076.34.

Conclusion

The Company continues to implement the strategy and business model to deliver returns. There remained a significant pipeline of business opportunity for the company. The Group has shown a decline in the financial performance in the first quarter of the financial year 2020. The top-line performance has improved, while the bottom-line performance declined. The Group’s revenue is primarily derived from the maintenance and other recurring fees, software license fees and hardware sales and professional service fees, which have increased for the period. Driven by an increase in the cash flow from operating activities, the group’s net cash position increased for the period. The Group is confident to tackle foreseeable future based on its liquidity position and available credit capacity. CSU’s VMS businesses receive maintenance payments in advance and hence operates with minimal working capital. The Group is looking to expand its operations organically and is also actively looking for acquisitions. Business operations are impacted by the outbreak of covid-19 pandemic and the main focus of CSU is to strengthen its balance sheet and reduce its operational costs.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 1,499.44 (as on 5^th June 2020).

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.