Portfolio update: Adding the 8th world wonder
Hi there,
You can track my investment activity through these portfolio updates. I will share my trade details and provide the necessary context around each decision.
Here are the latest updates:
I primarily focus on quality businesses. Here’s my investment approach:
Disclaimer: I am investing my own money. Do your own research. This article is not investment advice, but only shares my investment journey.
The transaction
I bought shares of Constellation Software at C$ 1,570. The transaction took place at the opening on May 14th.
Context
Investment thesis in short
Constellation Software needs no introduction. The serial acquirer juggernaut has been worshiped by almost every investment group over the past decade.
Until AI showed up, and software was officially left for dead. The stock price reflects that pessimism.
The blue bar you see in the graph is essential to Constellation Software’s business model: Free Cash Flow. And even in times of AI, that keeps on growing without interruption.
During the Q1 2026 earnings call, the CEO was clear on valuations and AI:
It just comes and goes, up and down, as the market evolves. We don't see more transactions than usual. We don't see less transactions than usual. It's just the same amount across the market as we've always seen. No, nothing's changed. There's a real disconnect between the SaaSpocalypse publicly traded stuff and private markets. Yeah, it's just ebbs and flow of the market. It's like any, you know.
Although you can vibe-code your way to any type of software, it will likely cost you more than what you pay your SaaS provider. Let alone you need to allocate resources to maintain the system.
And then I’m not even taking into account the risk and time spent involved to migrate from one system to the other. The switching costs are so high, it only makes sense if the benefit is significant, it is worth going true that trouble. Little VMS applications like the ones Constellation Software owns, are not part of that scope.
Building further on Q1 2026, the results were great. Total revenue increased by 20% to C$ 3,181 million. Organic growth stood at 6%, though this was 2% after FX adjustments.
Net income rose to C$ 17.32 per share, a significant jump from C$ 6.41 per share in Q1 2025. Cash flows from operations CFO reached C$ 897 million, a 9% increase. Free cash flow available to shareholders (FCFA2S) saw an even larger increase of 44%, totalling C$ 733 million.
A second headwind for Constellation is its size. The company grew by acquiring small companies. In the meanwhile it is generating such high levels of cash flow the question rises whether they are able to keep on deploying this capital at a rate fast and efficiently enough for it to generate ample returns.
That’s where the company invented the PEMS model (Permanent Engagement Minority Shareholder), a crucial evolution, allowing them to deploy capital into larger opportunities and mitigate the "gravity of scale" challenge.
Constellation Software’s first target ended up being Sabre, a troubled but deeply entrenched travel marketplace. Management did not say much about the recent investment, but after a track record stretching decades, it’s fair to give them a chance to turn that ship around.
Why now?
Constellation Software stock price fell off a cliff in the past months due to AI fears and Mark Leonard ending his tenure as CEO. In the meanwhile it has become clear that even if AI can - in theory - replace SaaS provides, it would be an enormous task to do so. And a bet not many would be willing to take.
For this quarter, the company also posted 6% organic growth, which in times of AI fears, that’s quite decent in my opinion.
It has also proven to be able to find large enough deals to absorb the capital that needs to be invested. A first example is the Sabre deal.
Also during the earnings call, the management did not seem bothered at all by AI, and rather saw it as a chance to become more efficient.
With a FCF yield of 7.06% and FCF margin of over 22%, Constellation Software is very attractive.