IMPORTANT: Click here to obtain the Economic-Financial Analysis document generated, where you can find all the calculations, ratios, forecasts, graphs, evaluations, and other data of interest presented in this post.
Qualitative analysis
- Business strategy, organizational structure, competitive advantages, management, qualities of its products and services, etc
- Sector analysis
- Macroeconomic analysis
Quantitative analysis
- Search for long-term trends.
- Historical evolution of the company.Analysis of individual items (Revenues, Balance Sheet, Profit and Loss Statement, Cash Flows).
- Ratio analysis.
- Projections of future growth
- Recommendations
Final valuation
As can be seen from the complete report of Constellation Software Inc., we can obtain a clear idea of the clear advantages offered by the company, both in terms of the returns generated in its different items and its consequent historical evolution, as well as in the figures obtained in the financial analysis presented.
At the economic level, the estimated growth of the sector and the macroeconomic variables analyzed manage to sustain the growth generated by the company.
However, it is the organization itself that is responsible for this performance, both in terms of profitability and operating margins, obtaining a recurrence that is extremely beneficial to the objectives set by the management.
At a qualitative level, Constellation has managed to obtain, after the results presented in its production cycle, characteristics that make it stand out from its competitors, with unique qualities generating strengths and competitive advantages that allow the company to consolidate its position in the market.
However, the accounting of the subscription service presented by the company does not allow a glimpse of its long-term growth potential, since it treats as liabilities revenues obtained on a recurring basis, negatively impacting the liquidity and leverage ratios presented by the company.
Avoiding this fact and contemplating a correct valuation of the metrics obtained, we were able to corroborate the company’s capacity to generate value.
In relevance to the metrics established by the company in recent years, it is overwhelming all growth established in its accounts, obtaining sales returns close to 20%, average financial returns of 40X, and a historical growth in net margin of 20%, as well as the return generated in its EBITDA.
Therefore, our projections have followed the line of this growth, with qualitative variables that allow its future development and a corporate culture aligned with the interests of the company, being one of the leading brands in the sector.
This level of growth comes after Constellation has catalysts that minimize negative impacts on the company’s results, the most remarkable being the potential Asian market presented after the strategic alliance, as it provides greater opportunities to enter new segments, brand expansion, and potential viable cash generation opportunities in line with its growth.
On the other hand, it is difficult to make recommendations about a company with the cash generation capacity presented, having analyzed practically all the items shown in its accounts and confirming the alignment presented in its growth strategy.
However, there are small particularities that can improve the company’s performance, beyond the margins generated.
As for the equity capital obtained, it is understood that its figure may be considered relatively small in relation to the profits retained by the company, and part of these profits may be used to pay dividends, with the aim of having a larger amount of financing available in the future, thanks to the entry of more capital into the company.
The strategy seems clear, as due to the historical performance and current metrics of the company, it would be a very powerful alternative for investors seeking a stable long-term return, positively impacting Constellation’s capitalization by increasing its value.
However, the growth generated through its acquisition strategy has led to a rethinking of this approach, and a merger between the two strategies could be established.
Due to the potential difficulty shown by the company in preserving the number of acquisitions contemplated, they may declare growth through this approach as their primary objective (as it has demonstrated its ability to generate profits), leaving the aforementioned strategy in dividends in the background.
In the case of not presenting acquisition alternatives due to variables that could interfere with this proposal, they could generate a dividend more consistent with the results obtained by the company
In addition, this proposal is totally viable for the company, as Constellation offers both a very high level of “Retained Income” and profits, presenting the possibility of recognizing the dividends it wants to undertake, declaring 100% of the paid-in capital.
In this way, they would reduce risks in the event that this value proposition does not have a positive impact on the company’s profits, in addition to being able to observe the trend of this strategy, minimizing possible contingencies after its implementation.
Another strategy to be undertaken by the company is to carry out a capital increase, due to the very high price per share figure presented by the company, managing to obtain financing through the investor, thus avoiding the rate hike presented by the Federal Reserve.
However, the company will have to accompany this capital increase with a share premium, defraying the additional cost to the shareholder, or by issuing preferential subscription rights, in order to offset the depreciation generated by the capital increase.
There is another possibility in case this strategy is not aligned with the company’s objectives (due to its mentality of providing the highest possible value to the investor), seeing effective the implementation of a Split to lower the share price, without affecting the investor or the level of capitalization of the company, generating greater entry opportunities for investors who cannot afford to invest 2,346CAD on December 31, 2021.
As a result of the information presented in this essay, it remains to highlight the company’s ability to create value, achieving truly surprising returns, corroborating the viability of its business model, presenting high advantages that make Constellation have a highly qualified capital allocation efficiency, achieving almost all of the proposed objectives in line with the growth carried out by the company.
