Investment Q&A

Q: Your latest market update talks about fundamentally sound companies with good long term histories. What companies from your portfolio most look like this?

Thx

Q: Hi With respect to Steve's question, about Series 1 debentures trading at $136-$138 currently and applying for new debentures through Rights for a price of $133, is it not true that Debentures currently trading also have an embedded additional value of $3.25, quarterly interest ( $3.25x4=$13.30 annual), payable on October 1st. Whereas, the debentures acquired through rights will be issued only on October 6 and are not eligible for that interest for quarter Jul-Sep and hence the price differential ?

Thank You

Q: Hi, We are applying to buy some Constellation Series 1 Debentures through rights, with a payment of $133.217, for family members. Where would it make most sense to hold these debentures - RRSP/RRIF, TFSA or a Non Regd Taxable account. ( Most of us being in higher Tax bracket of 40-54% Marginal tax rate ). considering the following:

1. These debentures will likely yield anywhere between 5-10% ( on a cost base of $133 ), by way of Interest income, for 17 years ( assuming we will be able to swap with warrants, if called before redemption)

2. We will incur a Capital Loss of $33 as at March 31, 2040. ( $100 Principal to be received at maturity)

3. If held in Tax sheltered accounts, would it make sense to move them to a Non-Regd Taxable account, let's say 5 years before maturity date, when the M/V of these debentures will likely start declining. So, we could use the Capital Loss in Taxable accounts.

Thank You

Q: Hello, what are the reasons that constellation made 2 spinoff (topicus and lumine) in the past years ? Why did they not keep everything under one roof and continue to grow constellation instead and follow the same path like Berkshire Hathaway that never did a spinoff.

Q: Briefly can you compare the pros and cons of the Brookfield and Constellation groups.
Thank You
Peter

Q: Sorry for another questions about the CSU rights, warrants and debentures. I was thinking of taking a small position in the debentures and have the rights to do that. However, I believe that I would be getting the Series 1 debentures which likely means that I will someday have to buy warrants to remove the redemption feature. The cost is now starting to increase because I am not sure there will be enough warrants to cover the Series 1 debentures so the warrants could be expensive. It seems to me that if CSU wanted to remove the redemption feature they could just do it without the warrants. Will there be enough warrants to go around? And if the warrants sell for $1 that is another 1% lost. Any further comments?

Q: What are your top 5 Canadian growth picks for the next year? Please rank and explain why each is a strong choice? Also, what are US choices?

Q: I received a copy of the debenture prospectus in the mail today and have been reading it with some interest. I think they are going to need an army of accountants to figure out how they should account for it. Although it would make an excellent CPA or CFA exam question, the arrangement seems unnecessarily (ridiculously?) complicated.

The nominal interest rate of CPI plus 6.8% until 2040 looked very interesting at first. However, the amortization of the $33 premium to the year 5 company par value redemption option would appear to almost fully negate the 6.8% (unless a warrant is held and exercised). If the warrant is exercised, effectively allowing the debenture plus its replacement debenture to go to term, the initial $33 premium amortized over 17 years still knocks off 2 to 3% per year. Nonetheless, unless I am missing something, CPI plus (say) 4% until 2040 still looks pretty good.

Having come to the CSU party late I only own 16 shares. That means I can buy $500 of debentures and so exercising or even disposing the rights seems hardly worth the effort. However, I was thinking that as the debentures will trade on the TSX, I could buy more rights or debentures but the amount I would be willing to pay would depend whether I could also acquire more warrants and at what price. It appears that the warrants will not trade on the TSX except when the company issues a redemption notice. That makes buying the debentures look more than a bit risky.

Does my analysis look right to you?

Does the 3.03 ratio of rights to $100 principal value of the debentures also apply to the warrants or is it 1 warrant for each $100 debenture? The prospectus says that CSU will try to ensure that warrants are available to all debenture holders. Do you have any idea how they will do that and will it that mean the warrants value will be suppressed somehow?

Finally, is it likely that the trading price of the debentures will assume the company will never redeem the debentures given the warrants effectively eliminate any incentive it may have to redeem the series 1 debentures early?

Thanks as always

Q: Hi
I am sorry to have to ask another question about the recent WTS issue of CSU.
I currently own 7 * $100 Unsecured SUB FLTG RT SI with a date of Mar 31 2040 and with a cost of $765 and a MV $955. I also CSU.RT of 40 with MV @ .75 and recently received notification of WTS of 40 at no value. My question is what must I do by Sept 29 if hang onto my current debentures will they lose value ? do I have to do something with the 40 CSU.RT that I have or the 40 WTS just issued. Should I just sell the current debentures on the open market. Totally confused by this despite reading all the recent questions and answers on your website.
Thanks
Kathy

Q: Good Morning

If I was to sell some csu stocks do the warants stay with the stock or do they remain in my account or can they be transferred to a tfsa if they are in a riff account?

Thks
Marcel

Q: I also have a broker from a long way back where I have CSU and he is advising that with this convoluted system CSU has come out with that is intimidating to us older investors, my broker is telling me I will get approximately $400 in Principal amount of the Debentures and be debited approximately $530. Does that mean that I am getting $400 worth of debentures and pay $530 for them? I got the impression that I was getting money for this action CSU is taking. I do not know how many shares I have at the moment but those numbers will hopefully give you a rough idea. I am hoping I do not end up with another stock that operates in this manner. I will be waiting to hear from you before getting back to my broker. Thank you very much as usual.

Q: Do you see any pound the table buys out there? I am holding bn, ge and cpng as they appear to have a nice risk - reward ratio. What I am looking for are stocks that have potential and present attractive entry points. I was considering Nxst for example.

Thanks as always.

Jason

Q: Hi,

Can I get your 5 best ideas - US or Cdn, regardless of sector - businesses that are founder-led, little or no debt, history of high ROIC?

Thank you,

Q: NVEI versus the rest ...

Can you suggest the names of some growth companies that you feel have more potential in today's market?

Thanks

David

Q: Apar from CSU and related companies, are there other vertical software comp[anies in large addressable markets in sectors such as healthcare, media and industrials that you find arttractive? At what prices would you recommend initiating a position and why do you find them attractive.
Thank you
Sam

Q: Hi, Just to clarify further about the debentures - If Constellation decides to redeem the debentures, Only the Warrant holders will have the ability to buy the new debentures and in the ratio of 1 warrant providing a right to by 1 debenture. So, the Debenture holders ( with redemption called ), can only swap/buy the new debentures with No Redemption clause, would need to either already have or buy the warrants in the market. If not, they will be exposed to a capital loss of, say. $37, for each debenture.

In our situation, we have currently 500 CSU.DB debentures and only 250 warrants. So, in a Redemption call scenario, we should be prepared to Buy 250 additional warrants in the market, if we want to swap/buy to retain the same no. of 500 debentures ownership. Is this correct ? And, for this reason, there could be a huge demand for these warrants, when called for redemption, because, a large no. of debenture holders, may not necessarily already have those warrants.

Will the New Debentures be listed as a separate security, in addition to the existing debentures CSU.DB ?

Thank You

Q: Hello, Based on 0.33 CSU.RT, purchase and cost of 3.03 rights being 0.33x3.03= $0.99. We can acquire new CSU debentures at a total cost of $133+0.99=$134 appx ( FV $100 and Debentures with no right with management to redeem ). Does it sound accurate ?

Questions:

1. CSU debentures ( existing ) are currently trading at $137. What do you expect the trading range of New Debentures, which will be listed after Oct 6 ? My assumption is that new debentures could trade at a higher price than $137, due to No Management redemption right ( All other terms, interest etc being identical to present debentures ).

2. These debentures will pay interest based on 6.5% + 0r - Rate of change of CPI, over preceding 12 months, as at Mar 31, each year. Looking at the present and projected inflation scenario, if the rate of increase of CPI, declines over time, compared to current high rate, the annual interest rate for debentures could see a decline. Would this not cause the Debenture ( like other Bonds ) market value/price to decline ?

Please correct these assumptions and provide your thoughts. Thank You

Q: Sorry for another inquiry about CSU. This was listed in my brokerage account.

WTS CONSTELLATION SOFTWARE INC EXP 03/31/2040
INC EXP 03/31/2040 EXP 03/31/2040 SPINOFF ON 28 SHS ***CONSTELLATION SOFTWARE INC REC 08/24/23 PAY 08/30/2

What does this mean? Are these the rights or the warrants?
Can I do anything with them yet? If yes what and how? Im with a banking brokerage firm so independent of any personal advisor/broker.

Thanks
Jeff

Q: Hello 5i Research,
I have read the recent questions and answers about CSU rights. I have some interest in becoming a CSU debenture holder. I'd like to know what strategy you recommend: selling the rights I've obtained or buying them on the secondary market? How do you assess the value of the rights? Are they overvalued, undervalued or well valued? Or, given the low price of $0.53, do I buy as many rights as I need to buy as many debentures as I want to hold? Thanks for your help, Eric

Q: One of the thing most analyst covering CSU along with 5i is how they have not issued new shares since going public. The stock is up over 15,000% and seems to be more growth ahead. If they have not issued any shares hows the stock up 15,000%? is this just new investors buying the limited shares that are traded at higher and higher prices and holding on to them?