Q: First and foremost Season's greatings and thank you very much for the support.
Following up on Joel's question from December 15th. I agree that subsidiaries will seek to integrate the use of AI into their processes in order to maintain and perhaps ultimately improve their margins, but this will have a direct impact on short-term profitability (e.g., one year). How can Constellation justify the multiple they are currently supporting with declining margins? The only way I see to improve profits would be to substantially increase accretive acquisitions during the transition. For my part, Constellation was my largest position and has lost a lot of value, even though I'm still up 200%. I'm really worried about what to do with my investment. How many quarters do you think I should wait before knowing more?
Thanks for your help.
Yves
Following up on Joel's question from December 15th. I agree that subsidiaries will seek to integrate the use of AI into their processes in order to maintain and perhaps ultimately improve their margins, but this will have a direct impact on short-term profitability (e.g., one year). How can Constellation justify the multiple they are currently supporting with declining margins? The only way I see to improve profits would be to substantially increase accretive acquisitions during the transition. For my part, Constellation was my largest position and has lost a lot of value, even though I'm still up 200%. I'm really worried about what to do with my investment. How many quarters do you think I should wait before knowing more?
Thanks for your help.
Yves
5i Research Answer:
Just to be clear, margins have not yet declined. The past four years have been stable, and the Q3 net margin of 7.1% compares well with 2024's 7.26%. Organic growth was also good in the Q3. The transition may take a year, but we think the shareholder base will be comfortable with lower margins (if they in fact occur) for a period of time, if the company is positioning itself better for the future. With a new CEO, we certainly think that some quick acquisitions would help, to give investors comfort that the long term strategy has not changed and the new guy can do deals. We might give it a couple of quarters to see how things proceed here.