This investor explains why he’s shopping for Constellation Software program

Lorne Steinberg Wealth Administration senior vice-president of equities Martin Cobb mentioned his agency is utilizing the current selloff in Constellation Software program (Constellation Software program Inventory Quote, Chart, Information, Analysts, Financials TSX:CSU) as a shopping for alternative, arguing that little has modified essentially regardless of investor unease following founder Mark Leonard stepping apart for well being causes.

Talking on BNN Bloomberg Market Name on Jan. 27, Cobb mentioned the agency is rotating capital out of Saputo and into Constellation, citing a valuation reversal that has created what he views as a uncommon entry level.

“A yr in the past, Saputo was buying and selling at a few third of the price-to-earnings a number of of Constellation,” Cobb mentioned. “As we speak it’s on the identical a number of, truly barely larger. So we’re switching our Saputo into Constellation Software program.”

Cobb mentioned Leonard’s departure has weighed closely on sentiment however doesn’t impair the corporate’s decentralized working mannequin or acquisition engine. He famous that Constellation has accomplished roughly 800 acquisitions since inception throughout about 150 vertical markets, with particular person enterprise models more and more chargeable for each operations and capital allocation.

“Sure, he’s been the architect of their success and instilled the tradition and acquisition self-discipline,” Cobb mentioned. “However the acquisition engine doesn’t cease.”

He additionally downplayed issues that synthetic intelligence might disrupt Constellation’s area of interest vertical-market software program companies, arguing that lots of its purposes face restricted aggressive stress from generative AI.

“Should you’re operating a cemetery and your software program works, you’re not too apprehensive about ChatGPT,” he mentioned. “The entire ‘AI eats software program’ narrative has simply taken maintain, however I believe it’s creating some nice alternatives.”

Cobb pointed to Constellation’s long-standing acquisition playbook, with a mean deal dimension of about $17-million, roughly 100 acquisitions per yr, and buy multiples close to thrice EBITDA. He mentioned the shares are actually buying and selling at valuation ranges not seen in a decade or extra.

“To me, it simply ticks all of the bins,” Cobb mentioned. “Nothing’s actually modified besides the valuation.”

Constellation shares have misplaced 41.06% over the previous 12 months however gained 78.94% over 5 years. Of the analysts overlaying the inventory, 10 fee it “Purchase,” three “Maintain,” and nil “Promote,” with a consensus value goal of $4,531.15.

The shares closed Jan. 28 at $2,640.06.

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