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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: Peter and Team,

I've owned Constellation Software since the model portfolio was created and have done well with it... very happy, great pick!

Reading their quarterly results, it seems like they are firing on all cylinders still - cash is up, debt was reduced, they grew both by acquisition and organically, earnings per share are up - things look good and the company still seems like 'A' quality.

Am I missing anything?
Read Answer Asked by Marc on October 31, 2014
Q: There's an interesting take on CSU rights I found in my inbox from Seeking Alpha (here: http://seekingalpha.com/article/2490895-constellation-software-rights-a-low-risk-high-reward-special-situation?uprof=44) that argues the rights should be trading at 94 cents. One little aspect it ignores is that if you purchase rights as opposed to having received enough to purchase adequate debentures you will be receiving less than 1% interest in the first year on your market price vs. the 7.4% coupon on par. Also they compare this issue with a Microsoft bond without highlighting the difference in credit quality.

This email went to hundreds of thousands of Americans, so we'll see if the rights lift off 55 cents on Monday!
Read Answer Asked by Jeff on September 15, 2014
Q: CSU Rights are trading at ~$0.59 and for every 21.192 Rights held, the holder of such Rights will be entitled to subscribe for C$100 principal amount of Debentures, exercisable at a price of C$95.00 per C$100 principal amount of Debentures purchased. Am I correct in thinking that the effective cost of buying the debentures is then $0.59 x 21.192 = $12.50 + $95 = $107.50? Are you still a fan of these at that price?
Read Answer Asked by Adam on September 04, 2014
Q: Hi 5i: some additional thoughts on the CSU debentures. Shouldn't people think first about whether these debentures are really the right kind of investment for them? For starters, maturity is a long way out (2041?), so the fact that you can buy 100 face value for 95 with your CSU rights is not as material as what the debentures will trade for in the meantime. Second, long term corporates may not be a good idea from a risk standpoint. Hank Cunningham I believe suggests that average fixed income investors keep their corporate maturities at 10 years or less, just because the corporate world does not provide sufficient visibility to justify going longer. Let's remember too; this is no utility; this is a tech company with a significant growth by acquisition component, despite successes to date. Third, if these really are the product for you, shouldn't you be thinking about whether you would use market purchases to top up to your regular position size, essentially with the rights just giving you a small potential discount on the whole position? Along those lines Peter, would you consider making CSU debentures an important addition to the Model Income Portfolio and, if so, take us through the analysis of whether to go ahead with the purchase at anticipated prices and what you would sell to do so? Thanks!
Read Answer Asked by Lance on September 01, 2014
Q: As for Kathy's question on acquiring a small CSU debenture with rights, possibly she ought to check with her broker to see IF a $200 bond could be sold. This quote is from the itrade site "Face value should be in multiples of $1,000.00 as there are no fractional bond units, except for strips where the rule in multiples of $1,000 does not apply." Also it is not possible with them to trade anything less than a $5000 corporate bond online.

Perhaps for most of us small holders of the rights the best course of action is to sell them on the open market; otherwise you might be stuck with an unmarketable security until maturity in 2040. Alternatively if you're really keen on the debentures you could purchase enough rights to get up to the minimum trading levels so you are holding something marketable. Thanks, J.
Read Answer Asked by Jeff on August 30, 2014
Q: As a Constellation shareholder, rights have been deposited into my account and I have been considering an additional purchase of rights (CSU.RT)on the open market to participate more fully in the debenture offering. However, I have no experience in such rights offering and no idea as to how to value them. From the price action in the first week of trading ( ranging from .40 to .70 cents), I suspect I'm not alone. Any advice, suggestions, guidelines appreciated.
Thanks
Read Answer Asked by William on August 29, 2014
Q: I have a small position in constellation software. What would you think of acquiring some more rights and invest in the debentures by borrowing against the home line of credit? Maybe even convert it to a mortgage amount at a lower floating rate?
The interest rate on the borrowing is a floating rate as is with the debenture and the premium offered with the rate reset would more than justify the risk?
Read Answer Asked by Rajiv on August 24, 2014
Q: Based on yesterday's close Auto Canada's (ACQ) price to book ratio is 7.25 compared to Constellation Software's (CSU) 21.26 and trailing PE ratio is 36.21 compared to 57.47. Considering the nature of each company's business and assets, which I appreciate are comparing apples and oranges, I consider ACQ fully valued however significantly more reasonably priced than CSU. Doesn't the high rate being offered by CSU on the recent rate reset pfd share issue indicate the risky nature of CSU as an investment? How does the market justify a price for CSU that is so high relative to what is supported by their financials? Could I please have your comments?

Duncan
Read Answer Asked by Duncan on August 14, 2014
Q: Peter and Team,

I am a shareholder of CSU and am interested in the debentures they are issuing. I have a few questions: first, does it make sense to buy more stock now to get more rights to get debentures at a $95 per $100 par value or should I wait for the rights to come on the exchange and buy them then? Second, I think the debentures are supposed to yield 7.4% compared on the par value and then reset to 6.5% + CPI annually. Is my understanding correct? Third, I think that the floating nature of this debenture should make its capital value stay pretty flat even in a rising interest rate environment as long as CSU's credit-worthiness is good. Any thoughts on this?

Thanks!
Read Answer Asked by Marc on August 13, 2014
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