giofranchi

Thank you! :) Cheers, Gio

I agree. If a big acquisition runs into trouble, they won’t achieve a 15% CAGR in FCF. Though, I would say that platform companies like VRX, TDG, and CSU are very focused on just one industry (pharmaceutical, aerospace, software), and they therefore stay very much within their so-called circle of competence. This of course imo lowers the risk of a major mistake. Cheers, Gio

A great novel! :) Thank you very much, Gio

Mmm... In my valuation I suppose a FCF annual growth of 15%-20%, made by the sum of 5% organic growth and 10%-15% growth from acquisitions. If your company grows 5% organically, thanks to the strong moat you believe it has, it might still be far from the growth I suppose CSU could sustain for the next 10 years. Gio

Liberty, any idea? Thank you! Gio

Does anyone know when it is going to resume trading on the LSE? Is anyone on the board interested in buying it after the trading resumes? Thank you! Gio

Of course to use a discount rate of 15% means you’ll get a return of 15% compounded annual. I invest wherever I see the “possibility” to get such a return, hoping that, if something goes wrong, I could still get a “minimum return” of 9%-10% compounded annual. It is not the “possibility” but the “minimum return” which I use as discount rate in a DCF analysis. Gio

I get to a multiple of 21x FCF. Which multiple of FCF do you think might represent FV for a company that grows FCF at a CAGR of 15%-20%? Gio

ap1234, I have got the message, thank you! ;) But you haven’t answered my question: do you think with a CAGR of 15% in FCF CSU might turn out to be a good investment still 10 years from now? And do you think a 5% annual organic growth + a 10% annual growth from acquisitions could be achieved? Also, do you have an idea of how large is CSU’s market for new acquisitions? I find THIS single piece of information much more useful than any scenario I might try to conceive by myself: for instance, when I get to know that an $80 billion market cap company like VRX has a market for new acquisitions made up by $6.5 trillion of private + public companies, well that gives me comfort they are not running out of options anytime soon! So, how do CSU and its market for new acquisitions compare? Cheers, Gio

Well, I don’t know what’s your definition of a “glamorous stock”… But mine certainly doesn’t apply to a company which didn’t even have a thread on this board until a couple days ago! ;) And my valuation was wrong, like abyli justly pointed out: today’s FCF multiple is 21x, and if you assume a 50% contraction in that multiple, you are implying the fair valuation for a business which grows FCF at a CAGR of 15%-20% to be a multiple of 10x FCF… Which obviously makes no sense. From a philosophical point of view: you might be right that it could be financially more rewarding to constantly change your portfolio of businesses from stocks that are no longer cheap to stocks that have become cheap, and so on over and over again. But I find deeply satisfying my everyday job of managing a couple of businesses (hopefully more in the future!), and don’t have the time nor the inclination to constantly scan thousands of stocks in search of the cheapest… Therefore, I have only one option left to invest my firm’s free cash: to look for a great entrepreneur, in a good business, which I could buy at a fair price. And then let him/her do what he/she does best. This imo has nothing to do with the “vain” hope of finding the next Buffett! Cheers, Gio

What I mean is that usually when I find a great entrepreneur, in a good business, at a fair price, I am satisfied and I invest my firm’s free cash. Then I concentrate on generating more free cash to buy more of the same! Therefore: Is Leonard a great entrepreneur? I think the answer is yes. And he is still young enough. Is he in a good business? I think software is an industry that will grow for many years to come and in the article I have posted Leonard says at CSU they have a list of 10,000 possible acquisition candidates! It is hard to believe they might run out of options soon… Therefore, I think the answer is once again yes. Is CSU stock price fair? If I am correct it is selling for 21x FCF, I don’t even see a meaningful multiple contraction from the current level… And it all depends on how CSU will perform in the future: a 5% organic growth + a 10% growth from acquisitions and CSU might turn out to be a very satisfying investment 10 years from now. Those imo are not easy goals, bet certainly not impossible either. I think I am reading all Leonard’s letter, and then I am pulling the trigger… And go back to my businesses to generate more free cash! ;) Cheers, Gio

It is no easy task to build a CAD11 billion market cap company either, is it? ;) Those kinds of hypothesis are imo too difficult and I suspect that even for knowledgeable people in the software industry are nothing more that educated guesses… But of course I am reading all Leonard’s letters! And I hope to gain some useful hindsight! ;) By the way, are you planning to hold your investment in CSU, increase it, or sell it? In other words, at a multiple of 21x FCF do you think CSU is fairly valued, undervalued, or overvalued? Cheers, Gio

I agree 100%! ;) And from now on I suggest you behave like this: if you happen to think about another lame joke of yours, send me a PM… And we will have a laugh together!... On a public board, instead, it sounds more like an attack than a joke… On the other hand, disclose what you are really doing publicly, not through any PM… Cheers, Gio

Well, it all depends on the future CAGR of FCF, doesn’t it? That’s what I have tried to do… though, of course, I am not knowledgeable about CSU yet! ;) Cheers, Gio

That was not my point. My point, instead, is I don’t find many people who are transparent about their holdings and about their buying and selling actions on a public board… Instead, I find many people who really enjoy talking a lot!!… The few times I looked at those threads you have mentioned, I never saw you disclosing anything… But probably I have just missed the most important posts of yours! ;) Gio

Ok... I guess this answers my question, doesn't it? ;) Cheers, Gio

http://seekingalpha.com/article/3241826-brookfield-asset-managements-fee-growth-bodes-well-for-the-future?auth_param=7i5hb:1andlah:c31926acd78c5d91609b1bd13785922e&uprof=25 Cheers, Gio

Ok... Thank you! :-[ Even better, don't you think? Is it therefore trading at a FCF multiple of 27.6 x (1 - 0.24) = 21?!... Am I right now?... Why do people say it is so much expensive then? ??? Gio

No! But I have sold at $414... Besides, I have never tendered a share before... I don't know the process, and I am not sure how my bank would handle it... Let's just say it was easier for me to sell BH on the open market... But probably it has been a mistake! ;) Gio

I at least have the transparency to say what I am doing plainly for everyone to see. In a public board I think it is not very common… Now that I think of it, I have never heard you share with others what you are doing… But of course you are very good at criticizing… That’s for sure! You are funny and sarcastic… Just curious… Can you tell us how old are you? Gio

Risk Revisited Again Gio Risk_Revisited_Again.pdf

Gio, just curious but what is your annual portfolio turnover rate? Seems to be at least 75% if you ask me. How does that fit with holding for the very long term? I don’t know… But the companies I am interested in are almost always the same, with the possible exception of TDG (which I hadn’t researched enough until I heard it mentioned by Ackman), and now CSU (which I ignored the existence of until a few days ago…). Changes like this one are very rare indeed. Usually I buy more of what I like because I have meaningful fcf each month. This being said, changes might happen: for instance, I held a very large investment in FFH, and when they launched FIH, I shifted some capital from FFH to FIH. Even now FFH is a large position in my firm’s portfolio, and I hold part of it instead of cash… Therefore, I might decide to sell some and buy CSU… The companies I am interested in are and will probably remain just a handful! ;) Gio

CSU is in my “sweet spot” today: 1) Leonard is not yet 60; 2) He has a proven and amazing track record; 3) Though not sure yet, I guess an $11 billion market cap is still very small if compared to its market; 4) Software is an industry that will keep growing for a long time; 5) Valuation: “Cash Flow from Operating Activities” in 2014 has been $16.11 and has grown at a CAGR of 39% for the last 10 years. Now, that number simply is Net cash flows from operating activities divided by the number of shares outstanding. And it includes Income taxes paid, but excludes Interest paid and Property and equipment purchased. Which together have been 7.8% (8%) of Net cash flows from operating activities. This leads me to believe that what Leonard calls cash flow after tax, interest, and capex should have been $16.11 x 0.92 = $14.82 in 2014. Now, let’s suppose it grows 30% this year, and the 2015 number gets to be: $14.82 x 1.3 = $19.27. It means CSU is selling for a multiple of $531 / $19.27 = 27.6 x FCF. Let’s also suppose FCF grows at a CAGR of 20% for the next 10 years: 10 years from now it will be $119.32 per share. And let’s suppose 10 years from now CSU’s multiple has contracted from 27.6x to 20x: its share price will be $119.32 x 20 = $2,386.4. If it actually goes from $531 today to $2,386.4 ten years from now, a CAGR of 16.2% will be achieved. This valuation assumes an annual growth in FCF per share which is 50% what it has been on average during the last 10 years, and a 27.5% contraction in the multiple CSU is selling for today. Therefore, imo the only question that remains is the following: is CSU’s market for new acquisitions large enough to make FCF per share grow at a CAGR of 20% for the next 10 years? Cheers, Gio

I have two questions for people who are knowledgeable about CSU: 1) In Table 3 of the 2014 AL we can see a column “Cash Flow from Operating Activities per Share”. Last year number was $16.11, and it has grown at a CAGR of 39% during the last 10 years. Immediately below that table Leonard writes: So, here is my first question: is “Cash Flow from Operating Activities per Share” on Table 3 cash flow after tax, interest and capex, or before them? If before, does anyone know the number per share after tax, interest and capex? 2) My second question is relative to the size of CSU’s market: does anyone know the size of their market for new acquisitions? Thank you very much! :) Gio

Interesting article from last year. Cheers, Gio Constellation_Softwares_elusive_CEO_-_The_Globe_and_Mail.pdf