Constellation Software (CA:CSU) reported fourth-quarter 2022 results on March 29 after the markets closed. If not for the acquisitions in 2022, the software consolidator’s financial performance would have to be considered a disappointment.

On the top line, revenue at the Toronto company increased 30% over 2021, to $6.62 billion (all figures in U.S. dollars unless noted otherwise), up from $5.11 billion in 2021. On the bottom line, its net income was $512 million, 65% higher year over year, from $310 million a year ago. On a per-share basis, earnings increased 65% to $24.18 a share from $14.65 in 2021.

While all of these numbers look good on paper, its revenue growth in 2022 wouldn’t look nearly as promising if acquisitions were excluded from the Q4 results.

Little Organic Growth

For all of 2022, Constellation’s organic revenue growth was -1%, or a slightly better 3% increase if you adjust for foreign exchange. Fortunately for CSU stock holders, its profitability was reasonably healthy in the past year. But even there, its results aren’t as good as they look in the press release.

The company’s pre-tax profit in 2022 was $725 million, 94% higher than a year earlier. However, in 2021, it had a $295 million expense for redeemable preferred securities, which is related to its 2021 acquisition of Topicus.com B.V., a vertical software provider based in the Netherlands.

Constellation’s Total Specific Solutions (TSS) subsidiary completed the purchase of Topicus on Jan. 5, 2021. Together, they were spun out of Constellation and now operate as an independent public company, Topicus.com (CA:TOI). Constellation holds 39.4 million subordinated voting shares with an economic interest of 49.3% and 74.7% of the votes. Constellation’s stake is worth approximately $3.8 billion.

If you add back the $295 million expense to Constellation’s results in 2021, the 94% increase drops to 8.3% based on a 2021 pre-tax income of $669 million, not $374 million.

It should be noted that Constellation’s reports do vary from quarter to quarter in terms of GAAP versus non-GAAP results because it makes so many acquisitions. That goes with the territory.

Happy Analysts

The Globe and Mail reported some of Raymond James analyst Steven Li’s comments after the company’s Q4 2022 results were released. The analyst called them “robust” but warned that investors should be focused on the performance of its Altera Digital Health acquisition. Constellation acquired Altera in May 2022 for $727 million.

“While Altera is not considered a reportable operating segment of CSU, given it is CSU’s largest acquisition, we track it separately,” Li said. “Altera’s organic revenue growth continues to drag down the group’s overall performance, coming in at down 13 per cent year-over-year at constant currency this quarter.”

Despite some of the negatives of its fourth quarter, Constellation’s stock got several target-price increases from analysts as a result of better-than-expected results.

RBC analyst Paul Treiber increased his target by CA$400 to CA$3,000. That’s 21% higher than its current share price.

Acquisitions continue to drive Constellation’s growth. The company’s website makes that clear. “We buy Good vertical market software companies. Now and again, we buy an Exceptional company,” reads one page.

One respected Substack newsletter, Compounding Quality, in February, declared that Constellation is “the best serial acquirer in the world.”

In February, it completed its acquisition of WideOrbit Inc., a U.S. media vertical market software provider, for $490 million. It paid for the company with cash and stock through its Lumine Group subsidiary. It plans to list Lumine on the TSX Venture Exchange soon. In February, it expected the listing to be completed by March 24. Constellation remains one of the best-performing stocks on the S&P/TSX 60.

Fintel Metrics

Constellation Software shows some respectable scores on Fintel dashboards, particularly on momentum, where it currently scores 87.23 based on its six-month momentum. That puts it in the top 20% of the 42,720 companies analyzed.

Fund sentiment for CSU stock is 68.71, ranking it at 9,992 out of 37,349 stocks analyzed. The shares are held by 289 institutional owners, with average portfolio alloction of 1.11%. Currently, 50 funds own Topicus.com stock.

This article originally appeared on Fintel

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