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Constellation Software has been discussed here a fair bit.

They run several divisions. One was in charge of European verticals, and it was spun off as its own company, with Constellation owning a chunk and keeping the control.

Topicus is listed in Canada on the Venture exchange as TOI.V (usual venue for "buyer beware" junior miners), and it reports in Euros, so its visibility in the investment world seems pretty close to zero. On rare occasion it also trades in the US as TOITF. (I exaggerate a bit, the average volume is about 30k shares/day despite the sorry bid/ask spread)

I've only started looking at them, so do a bunch of reading before taking anything at all in this post as accurate. I'm interested because they seem to combine the value growth rate and business model of Constellation with a share price that has gone nowhere for ages. In other words, by being overlooked they have become a whole lot cheaper since they listed about five years ago.

Since they are, like their parent, serial acquirers, year to year comparison of financials get a little difficult as you work your way down the statement. EPS bounces around a lot.

But I did a comparison of full year 2025 results to average of 2021 and 2022 results for a few metrics, and annualized that as a 3.5 year rate of growth.

Revenue up 20%/year compounded
Cash flow up 36%/year
[Total assets less debt] up 21%/year
Share count is constant (nice to see) so growth in top line figures matches per share growth.

And yet...average market price in 2021 was C$100.20, current price only C$101.99.

This is probably in part due to an unusually large quirk in their 2025 results. Due to some fairly complicated accounting requirements from a two-stage purchase, it seems they were forced to report a big hit to earnings which didn't really occur. To the extent that I follow, the first part of the acquisition was purchase accounting, then it converted to equity method, which triggered a revaluation, but there were also derivatives on the position in the mean time which booked a profit...blah blah blah, something along those lines. But the cash flow statement makes it clear that it was a large and very accretive investment, in a Polish firm Asseco that does something kind of like what they do: buy small software businesses, across a LOT of countries.

One random write-up at SA https://seekingalpha.com/article/4862529-topicus-s...
I don't pay much attention to his valuation notes based on comps, but it talks about some of the things going on.

One thought: a Europe-focused Constellation alternative might be a good play. What's the EU's competitive advantage? Regulating things. The average vertical software product might have a better-than-typical moat.

I think it's worth looking into. If others want to do some research and post deep insights I wouldn't complain. Hint, hint.
I might open a small position just so I don't forget about them. Tracking positions make no financial sense, but we're all humans, so it's good to be aware of nonsense things that work.

Jim

... the acquisition was purchase accounting, then it converted to equity method, which triggered a revaluation, but there were also derivatives on the position in the mean time which booked a profit...blah blah blah, something along those lines.

In case anybody is a deep enough geek to want a deep dive on that accounting treatment, see below.

But before you read that, the bottom line here is that the total cost of the position was €523,550, they owned 23.14% of Asseco at December 31, Asseco is still a publicly listed company with a market cap (in zloty) that equates to about €3.684 billion, so the market value of Topicus' position is €852,450, which is about €329m *more* than the cost. So despite triggering an "expense" of about €222m on the books for the reasons outlined below, they seem to be doing just fine on the deal so far.

Usually you have to really dig and understand the notes to find the bad stuff. In this case it's more like a treasure hunt. I'm sure it had a pleasant influence on their income taxes last year.

Jim



5. Investments accounted for using the equity method
Investment in Asseco:
On January 31, 2025, the Company purchased 8,300,029 shares in Asseco Poland S.A. (“Asseco”)
representing approximately 9.99% of the issued shares in Asseco. The Asseco shares were acquired at a
price of 85 PLN per share for total consideration of EUR 167,977. Asseco offers comprehensive,
proprietary IT solutions for certain sectors of the economy and is listed on the Polish Warsaw Stock
Exchange (the “WSE”). The Company has made an irrevocable election at the time of initial recognition to
present subsequent changes in fair value in other comprehensive income (“FVOCI”). The Company
designated the Asseco investment as equity securities at FVOCI because the investment in Asseco
represents an investment that the Company intends to hold for the long term. At the time the Company
purchased shares of Asseco, the trading price per Asseco share on the WSE was in excess of the purchase
price of 85 PLN per share. The Company recorded a gain of EUR 32,789 in the statement of income (loss)
at the time of purchase. During year ended December 31, 2025, the Company recorded a gain of EUR
190,618 based on the Asseco share price as at September 25, 2025, the date at which the Company
received the last outstanding regulatory approval for the acquisition of the treasury shares and commenced
the equity method of accounting, within other comprehensive income reduced by transaction costs of EUR
1,659. During the three months ended June 30, 2025, the Company received a dividend of EUR 7,710
from Asseco. The dividend has been included in net income and included in the line item “Finance and
other (income) expenses”.
On February 4, 2025, the Company entered into a binding agreement in respect of the acquisition of
12,318,863 treasury shares of Asseco for 85 PLN/share. These shares represent 14.84% of Asseco’s
issued share capital. The contract to acquire the additional shares of Asseco was a derivative under IFRS
Accounting Standards and had been recorded at fair value. The significant assumption associated with the
valuation of derivative is the blockage discount which includes the unobservable inputs of the percentage
of the block of shares that can be sold relative to the daily trading volume of Asseco shares and the discount
rate. The estimated fair value of the derivative asset decreases as the discount increases. The estimated
fair value of the asset increases as the discount decreases. The key observable input is the share price of
Asseco. As the Asseco share price increases, the fair value of the derivative increases. As the Asseco
share price decreases, the fair value of the derivative decreases. During the year ended December 31,
2025, income of EUR 101,686 was recorded within Finance and other (income) expenses (note 17). The
acquisition of the 14.84% interest in Asseco’s share capital was completed on October 1, 2025, increasing
the Company’s total shareholding to 24.84% and the derivative is no longer presented on the balance sheet.
The fair value of the derivative has been included as part of the carrying value of the total investment in
Asseco.
On September 25, 2025 and subsequent to this date, the Company applied the equity method of accounting
to its existing 9.99% investment in Asseco as a result of its ability to exercise significant influence over
Asseco. The Company elected to record the investment in Asseco at cost under the equity method of
accounting which comprised of the initial investment of EUR 167,977 and transaction fees of EUR 1,659
for a total cost of EUR 169,636. As a result, Topicus reversed previous fair value adjustments and recorded
a loss in the consolidated statement of income of EUR 221,748 for the year ended December 31, 2025.
Under the equity method of accounting, the investment is initially recognized at cost and is subsequently
adjusted to reflect Topicus’ share of profit or loss and other comprehensive income of Asseco. The
Company has elected to use “lag reporting” in relation to its investment in Asseco. The Company will record
its share of profit or loss and other comprehensive income on a “three-month lag” because the concurrent
financial information is impracticable to obtain from Asseco. Due to the complexity and timing of the
investment, the Company is in the process of determining and finalizing the estimated fair value of the net
assets acquired. The provisional purchase price allocation may differ from the final purchase price
allocation, and these differences may be material. Revisions to the allocation will occur as additional
information about the fair value of assets and liabilities becomes available.
The aggregate cost of the investment in Asseco is comprised of the following:
• Cash paid to acquire initial 8,300,029 shares at 85 PLN/share – EUR 167,977
• Cash paid to acquire 12,318,863 shares at 85 PLN/share – EUR 245,269
• Fair value of derivative asset reclassified to investment in affiliate – EUR 101,686
• Transaction fees – EUR 8,618
The initial cost of the investment in Asseco is EUR 523,550.
On February 3, 2025, Topicus announced the signing of a shareholders’ agreement which was entered into
with the Adam Góral Family Foundation governing their cooperation as shareholders in Asseco. Under the
terms of the agreement, certain parties had the right to buy up to 1.7% (1,411,006 shares) of Asseco’s
shares from the Company at a purchase price of PLN 85. The contract was a derivative under IFRS
Accounting Standards and had been recorded at fair value. The key observable input is the share price of
Asseco. As the Asseco share price increases, the fair value of the derivative liability increases. As the
Asseco share price decreases, the fair value of the derivative liability decreases. During the year ended
December 31, 2025, an expense of EUR 37,712 was recorded. On December 4, 2025, the agreement was
exercised for 1.7% (1,411,006 shares) of Asseco and the company received total proceeds of EUR 28,368
and the derivative is no longer presented on the balance sheet. As a result, Topicus’ shareholding
decreased to 23.14% as at December 31, 2025. The Company recorded a dilution gain of EUR 30,106 as
a result of this disposition and has been included in “Finance and other (income) expenses”.

Thanks for posting about them. They've been on my tracking list for years but the market continues to not provide a premium on the stock price. I also suggest looking into Lumine (US ticker LMGIF).

While the five-year chart has hardly been thrilling, the one-year chart tells a more interesting story. The shares were nearly C$200 last July and are now around C$95, so this is not simply a case of the stock marking time for years. It is also a fairly sharp de-rating even as the business kept compounding at a decent clip. Two small points though. The cash-flow growth number also depends a lot on which cash-flow metric you are using. FCFA2S is their own free cash flow available to shareholders metric, and it was up 23% in FY25; plain operating cash flow was up 19%. Of course, neither number is exactly a disaster. And the Asseco accounting loss is not quite as phantom as it sounds. There was a €221.7m expense, but there was also €119.7m of income from derivatives, fair-value related adjustments and a dilution gain associated with Asseco, so the hit to reported earnings is more like €100m than the full €222m. Still ugly, of course, just not quite as ugly as the headline makes it look.

At roughly €218.7m of FCFA2S, and converting the market cap into euros, I get something like 23-24x. That is not silly for a business like this, but it is not exactly cheap either. The bigger question, to my mind, is whether the Constellation/TSS approach of buying small, sticky niche software businesses and leaving them largely alone can still work as well in Europe at this size, particularly as the deals get larger. Organic growth was 4% in 2025, so a lot still depends on their ability to keep finding and buying good businesses. And Asseco is not the usual sort of deal in that mould. That is not the standard tuck-in. They didn't buy another small software company outright and leave it to get on with things. They ended up with close to a quarter of a large listed Polish software group, via an initial block purchase and then a larger treasury-share deal once the approvals came through. That is a different and more complicated bet. It may work very well, but I suspect we will not really know for another couple of years. Debt is also no longer trivial. At year-end, current and non-current loans came to about €692.5m before lease obligations, against €326.7m of cash. That is not alarming, but it does make the story a bit less pristine. The model is still attractive, but it is no longer quite as simple as "cash-rich serial acquirer buys endless small software companies."

The AI angle is interesting too. The easy bear case is that one decent engineer can now build a workable replacement for some creaky niche VMS product over a long weekend. But I think this is where your European regulation point matters. If these products are embedded in tax, accounting, healthcare, local government, payroll and the rest of it, then the moat was probably never just the code. It was the compliance burden, the local-language quirks, the ugly integrations, and a customer base with very little desire to entrust anything mission-critical to a new AI-native vendor. In that sort of market, AI may matter less than people think. More bureaucracy is a nuisance, of course, but for a company like this it may not be entirely bad news: in these regulated niches, the rulebook can be part of the moat.

Topicus reported Q1 2026 on 5 May. On a first pass it looked pretty ordinary. Revenue up 23%, organic growth 5%, FCFA2S up only 2%, reported net income down 21%. The shares followed the headline, drifting from about C$100 to C$90.18, where they now sit. I don't think that it is quite right, but the simple read is that this is still a good compounder but it's starting to mature a bit faster than bulls hoped.

The operating cash flow line was much better than the headline FCFA2S number. Pre-working-capital operating cash flow was €106.5m, versus €80.9m last year, up about 32%. FCFA2S was held back by a smaller seasonal working-capital benefit and higher financing and lease costs. Those are of course real costs, but they don't say much about whether the underlying software businesses are still working. The recurring revenue side was fine, with organic growth of 7%, roughly where it has been every quarter since Q1 2024. The weak line was professional services, where organic growth was -1%, probably the thing in the quarter worth watching. The reported net income decline is mostly noise: Q1 2025 had a €31.4m fair-value gain from Asseco that flattered last year's number, and stripping that out, Q1 2026 net income was actually up about 42%.

The Asseco piece has also moved on. The Warsaw price has come back from a YE25 peak of around PLN 191 to PLN 175. Even so, the 23.14% stake is worth roughly €791m on a €523.55m cost basis, with about €267m of unrealised gain still sitting there. There is also the dividend: PLN 13.05 per share, ex-date 13 May, payable 22 May. Topicus gets about €59m of cash, which lands in Q2 FCFA2S. Useful, but not normal. It is an unusually large payout, around 92% of consolidated 2025 net profit, helped by the Sapiens disposal. I would not capitalise that Q2 boost. The next dividend, paid in 2027, will be meaningfully smaller, with the 2025 base inflated by the Sapiens disposal.

At C$90 and LTM FCFA2S of about €222m, the trailing multiple is around 21x. Strip out the Asseco stake and the dividend receivable and the operating business is closer to 19x. Still not a bargain-bin price, but there is more room for error than there was a couple of weeks ago. The bigger issue is that the pitch has changed. A year ago it was simple enough: Constellation-style VMS, small sticky vertical software acquisitions, decentralised operators, steady compounding. That is still in there, but it is no longer the whole business. Cipal Schaubroeck was bought at roughly 10x EBITDA and 2x sales, above their previous 6-8x EBITDA comfort zone. Asseco is only maybe 30-40% true VMS by revenue. This is drifting from a pure VMS compounder into a broader and more mixed capital allocator. That still may work very well, and may even be the right thing to do as Topicus gets larger. But I continue to suspect we will not really know for another couple of years. It is a different capital-allocation problem from the old Constellation/TSS model, where you buy a small sticky niche software business cheaply, leave it alone, and do it again. As such, it probably deserves a slightly lower multiple.

The near-term issue is deployment. In 2025, Topicus deployed around €775m all-in, but close to half of that was the Asseco stake, which you should not expect to repeat at that size. Strip Asseco out and ordinary bolt-on deployment was around €390m. In Q1 2026, plus committed deals since quarter-end, the bolt-on number is around €60m. That is well below last year's run-rate, and the ordinary bolt-on cadence has gone quiet. If Q2 and Q3 look the same, the bull case becomes harder to underwrite. If deployment gets back to normal, the base case still works. The balance sheet is in better shape too: gross debt is around €449m against €331m of cash, so there is room for whatever sensible deals turn up.

The services number is the bit worth watching, with the usual warning label that one quarter is not much of a sample. Recurring software grew 7%. Services shrank 1%. The most plausible explanation is not that AI is suddenly coming for the important stuff. More likely, it is nibbling first at the lower-grade implementation and customisation hours. The mission-critical compliance systems are still buried in local tax rules, payroll conventions, language oddities, municipal processes, and all the other bureaucratic plumbing. That was always a big part of the moat. The code was only part of it. AI is not going to tidy up a Belgian municipal accounting workflow over a long weekend.

If this is the start of something, I would not read it as bad news. The revenue line may look a little less pretty, but the mix should be margin-positive over time. August will tell us more. It also fits the broader point from a couple of weeks ago: in regulated verticals, the rulebook is the asset. The first thing AI eats is the services work around the edge, not the sticky core.

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