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Three great non-US companies for your investment watchlist
Constellation Software | Kelly Partners | Nemetschek
Raj Dass
June 09, 2024
Dear Investors,
Many of the great companies in the world are in the USA, but not all.
This week’s newsletter is inspired by a question I received, which asked if there are good companies outside the USA.
The answer is of course there are. Let's take a look at three good non-U.S companies.
Cool cats from Canada, Australia and Germany
Constellation Software 🇨🇦
Constellation Software acquires, builds and manages vertical market software businesses in Canada, the United States, Europe and internationally.
Constellation Software vs S&P500
Over the past 7 years, Constellation has returned 528% versus 146% for the S&P 500.
Constellation | S&P500 | |
|---|---|---|
ROCE | 38.5% | 22.4% |
Gross profit margin | 35.0% | 51.7% |
Free cash flow margin | 20.7% | 19.3% |
FCF growth | 22.2% | 13.6% |
Free cash flow yield | 2.2% | 2.9% |
Equity to assets | 18.0% | 39.6% |
Interest expense | 14.2% | 9.5% |
Constellation has a low equity-to-assets ratio because it uses debt to finance the purchase of other software companies.
Kelly Partners Group 🇦🇺
Kelly Partners Group provides chartered accounting and other professional services to private businesses and high net worth individuals in Australia. The company offers accounting and taxation, corporate secretarial, outsourced CFO, audit, business structuring, bookkeeping and other accounting related services. It also provides financial broking, wealth management, investment office and other non-accounting services. The company has recently begun expanding in the USA.
Kelly Partners vs S&P500
Over the past 7 years, Kelly Partners has returned 582% versus 146% for the S&P 500.
Kelly Partners | S&P500 | |
|---|---|---|
ROCE | 21.7% | 22.4% |
Gross profit margin | 47.6% | 51.7% |
Free cash flow margin | 20.1% | 19.3% |
FCF growth | 24.1% | 13.6% |
Free cash flow yield | 6.1% | 2.9% |
Equity to assets | 26.8% | 39.6% |
Interest expense | 30.0% | 9.5% |
Kelly Partners grows through acquiring accounting practices. That has led to incurring debt and a high interest expense.
Nemetschek 🇩🇪
Nemetschek provides software solutions for architecture, engineering, construction, media, and entertainment markets globally. It operates through four segments: Design, Build, Manage and Media.
Nemetschek vs S&P500
Over the past 7 years, Nemetschek has returned 315% versus 146% for the S&P 500.
Nemetschek | S&P500 | |
|---|---|---|
ROCE | 26.2% | 22.4% |
Gross profit margin | 53.6% | 51.7% |
Free cash flow margin | 28.2% | 19.3% |
FCF growth | 22.1% | 13.6% |
Free cash flow yield | 2.5% | 2.9% |
Equity to assets | 61.4% | 39.6% |
Interest expense | 1.6% | 9.5% |
Nemetschek is conservatively financed with a high equity-to-assets ratio and low interest expense.
Conclusion
Constellation and Nemetsheck are in the software business, while Kelly Partners is in the accounting business. Nevertheless, each of these companies has outperformed the S&P 500 over the past 7 years. Each one also has excellent financial numbers.
These companies are a great place to start looking for your next investment. Neither Constellation nor Nemetschek has issued shares in over a decade, which is a good thing. That is almost unheard of in U.S software companies - who give them away like candy. Kelly Partners is less than a decade old and it has bought back shares.
Personally, I am intrigued by Constellation Software because it grows through acquisitions. Acquisitions usually don’t do well, but Constellation seems to have figured out the secret sauce. Also the CEO and founder, Mark Leonard, is well known for his shareholder friendly behaviour - such as flying economy class. He also has a beard befitting of a wise wizard (google him and see for yourself).
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