Hi all,
I thought their last earnings were quite good and yet, the market ain't convinced.
I analysed the earnings and stock using "Where the Money is" framework (a book that helps analyse modern companies, especially tech).
In short, the book's framework argues that traditional value investing (looking at book value or simple P/E ratios) isn't the best. He proposes to focus on:
Toll Bridge" Business: Identifying companies with such high switching costs that they become essential infrastructure for their customers.
Earnings Power vs. Reported Profit: Ignores "ugly" accounting (GAAP) that penalises companies for spending on R&D and growth, and instead looks at the raw cash a business could generate if it stopped reinvesting.
And uses a Checklist: Yes/No filter for Business quality, Management mindset, and Price (requiring a 5%+ earnings yield).
Topicus is quite known, but still interesting to describe:
Topicus is basically the European Constellation Software, a "serial acquirer" of niche software businesses.
So, after Q1 earnings (checklist) -->
Business: Ok. Recurring maintenance revenue—the highest quality "toll"—grew by 23.2% this quarter. Furthermore, Topicus holds a stake in Asseco Poland worth €758M, which is €256M higher than what is listed on the balance sheet. This "hidden asset" provides a good margin of safety.
Management: Ok. Good "owner mindset" by using Q1 cash to pay down €249M in debt. They also showed agility by committing an additional €37.7M to new acquisitions immediately after the quarter ended, taking advantage of market weakness. And they have planned quite a bit of buybacks since the beginning of March.
Price : Ok. At $94 CAD, the stock trades at roughly 14.5x Earnings Power. This results in a 6.7% yield; Seessel’s has a 5% minimum requirement.
Why the market did not get excited is probably due to the net income decrease. But this drop was purely an accounting distortion (the lack of a one-time gain from the year prior). Q1 2025 was inflated by one-time non-cash gains. Today, recurring revenue grew 23%, and Topicus generated €280M in cash, paying off €249M in debt.
Bear Case
Asseco Value Volatility: Because a significant portion of the "hidden value" is tied to Asseco's stock price in Poland, a crash in Eastern European markets could wipe out the cushion that currently protects Topicus shareholders, leading to further negative sentiment.
Professional Services Headwinds: Topicus still derives a portion of its revenue from professional services (implementation). In an environment of high wage inflation in Europe, these margins could be squeezed if they cannot automate these services faster than labor costs rise.
But I do feel the base case and bull case are much more likely than bear case.