Topicus Software is Constellation Software's 20 year old European Baby

 Topicus was started in 2001 and it was a Dutch company  focused on the pan- European market since day1. It was acquired by Constellation Software on January,2021.It is headquartered in the Netherlands and has offices in about 10 other European companies.It has a market cap of $4.7 billion compared to about$47 billion for Constellation Software. On a fully diluted basis there are 129 million shares.39.4 million of those outstanding shares trade on the public market.About 39 million remain with the original Dutch shareholders. .There were 39.4 million preferred shares owned by Constellation that were converted to subordinate voting shares in February,2021.                                                                          Topicus is in the business of vertical market software which models a business's operation from the start to the delivery to the customer.This allows the Topiucus customer to improve his operation for every stage and the overall turnaround time.This then speeds up processing time and reduce individual operation cost and overall cost.

    Second Quarter Highlights

   This blog and many other analysts are betting on Topicus (TOI) following in  the footsteps of it's highly successful parent Constellation Software.To this end TOI had a 54% increase in revenue to EUR178 million in Q2 compared to EUR 116million in Q2 2020.While net income increased to EUR169million compared to EUR 14 million in Q2 2020.This translates into $.12 per share.A number of acquisitions were completed for cash considerations of EUR 5.2 million during the first half.And subsequent to Q2, TOI completed a number of acquisitions for cash considerations of EUR 50 million. Consequently TOI still has a negative free cash flow.               

 

     The Constellation Software model 

 The voting structure for TOI is complex but Constelleation Software (CSI) owns subordinate and super voting shares.Consequently CSI controls 50.1% of TOI voting shares.And as a result Topicus has been active on the acquisition trail.In Q2 it bought a number of acquisitions for cash consideration of EUR 5.2 million.And subsequent to Q2 it completed the acquisition of a number of businesses for EUR50 million.So it is following in the footsteps of it's parent CSI.

    But Topicus is different than almost all other Constellation purchases.Traditionally CSI will include the acquired property under the Constellation Software umbrella.But Topicus was given more independence and handled as a spin-off.And it too is acquiring small businesses and making them part of the Topicus operation.All of their acquired properties to date have been in Europe.And Constellation is keeping a close eye on the new operation.

    This blog has no forecast on the expected price by yearend.But it notes that the price has already come up from $57 to $128 in 2021.Investors should be cautious here until Q3 results come out especially when TOI is showing negative free cash flow (because of the expenditures on acquisitions).        https://www.woodbridgegroup.com/