Three names, all Positive — the "Top 3 Buys in Our Portfolio," each with a published expected return and undervaluation from the house Earnings Growth Model. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis; foreign rows point QT/SA at the US OTC symbol. Written post with no timestamps — the At link opens the article.
| Ticker | Name | Research | View | What he said | At |
|---|---|---|---|---|---|
| CSU.TO | Constellation Software | QT · SA · STK · FA | Positive | Top Buy #1 — expected return 14.4%, "Current Undervaluation: 118.7%." Sold off with the sector ("the iShares Software Sector ETF… down more than 25% in the past 6 months"), which "gives you the opportunity to buy an amazing business at just 16x FCF." Three reasons AI won't disrupt it: "Software for niches like healthcare and public safety has be 100% reliable"; "The switching costs are very high for vertical market software"; "AI will help Constellations developers work faster." Jensen Huang is quoted as the outside authority — the idea that AI replaces software is "illogical," because "companies are building AI that can operate the software we already have… software companies are becoming the toolbox that will let AI get things done." "It would be very hard (probably even impossible) for AI to disrupt all of them." | read ↗ |
| KPG.AX | Kelly Partners Group Holdings | STK | Positive | Top Buy #2 — expected return 15.3%, "Current Undervaluation: 94.9%." "An amazing Owner-Operator. Brett Kelly owns over 46% of the company," and it "has grown over 19% yearly since it went public… you double your money every 3.75 (!) years." Down nearly 50% in six months: "You would expect something is seriously wrong with such a market reaction. But the company is actually executing well on its expansion to the United States… they're seeing more growth opportunities than they can currently fund. That's why they've raised some debt." The cause is named as AI-disrupts-accounting fear — "I think it's quite funny. All of a sudden, it seems like AI can disrupt any industry. I'm not very concerned about this." Brett Kelly at the AGM: "the company is trading at a share price today, that if we had excess capital, we would certainly be buying our shares back… with a great deal of enthusiasm and at large scale." | read ↗ |
| KNSL | Kinsale Capital Group | QT · SA · STK · FA | Positive | Top Buy #3 — expected return 14.6%, "Current Undervaluation: 69.0%." The GEICO analogue, made concrete: "The first time I found out about Kinsale Capital, it reminded me about Geico 70 years ago… Berkshire Hathaway made a return of 100x (!) on the company." What they share: "both active in an insurance segment that grows faster than the market" and "both gaining market share." Four reasons to own it — "It's a superior underwriter"; "They should be able to double their market share"; "a strong moat (technological advantage)"; "a superior capital allocator (Mike Kehoe)" — targeting 10-20% annual growth long term. The valuation arithmetic: "The stock is down 15% over the past year. Over the same time EPS grew by 15%. This means the stock became 30% (!) cheaper," leaving "one of its cheapest valuation levels ever." | read ↗ |
Stance = how each name is framed in this post. GEICO and Berkshire Hathaway appear only inside the Kinsale analogy; the iShares Software Sector ETF is cited as a sector price series; Joel Greenblatt's fund is a track-record reference. All are left to the talking points. Note the "undervaluation" figures are stated as percentages above the current price rather than discounts from fair value — 118.7% means fair value is roughly 2.2x the price.
A jargon-free summary of the thesis behind each argued name. (Renders on each name's consolidated page.)
Constellation owns thousands of small software businesses, each serving one narrow industry — hospital departments, fire services, bus operators, courts. None is famous; all are hard to remove once installed. The whole software sector has fallen more than 25% in six months on the belief that AI will make software easy to replace, and Constellation fell with it, down to about 16 times the cash it generates.
Slegers gives three reasons the fear is misplaced, and they are worth separating. Software for healthcare and public safety has to be right every time, and current AI is not reliable in that way. The cost and risk of ripping out software wired into how an organisation works are what actually keep customers, not the difficulty of writing code. And AI makes Constellation's own developers faster. He then borrows the most inconvenient possible witness for the bear case — Nvidia's Jensen Huang, who calls the "AI replaces software" idea illogical, on the grounds that AI is being built to operate existing software rather than replace it. The final structural point is the arithmetic of a roll-up: it is one thing to disrupt a software company, another to disrupt thousands of them, each customised to a different niche.
Kelly Partners buys Australian accounting firms and now US ones too, leaving the partners in place and taking a share of the profits — bookkeeping, tax and business advice, the least glamorous and most repeat-purchase work in finance. Founder Brett Kelly owns more than 46% of it, and it has compounded at over 19% a year since listing, which doubles money roughly every four years.
The shares have halved in six months. Slegers argues the operating facts point the other way: the US expansion is going well, and management's problem is that it has found more firms to buy than it has money to buy them with — hence the debt raise, and a guide to 20%+ continued growth. The market's worry is that AI will make accountants redundant, which he treats with open impatience: "All of a sudden, it seems like AI can disrupt any industry." The strongest evidence he offers is the founder's own words at the annual meeting — he would be buying back stock "with a great deal of enthusiasm and at large scale" if he had spare capital, and the price has fallen further since. The model puts the shares at 94.9% below what he thinks they are worth. One caveat the reader should carry forward: this issue predates the disclosure, two months later, that Kelly was margin-called on shares he had pledged — a governance problem that eventually limits how much conviction the archive gives this name.
Kinsale writes insurance that ordinary insurers refuse — the awkward, hard-to-price business risks — and charges accordingly. It keeps the premiums it does not pay out in claims and invests them in the meantime. Slegers' reference point is GEICO seventy years ago, on which Berkshire eventually made about 100 times its money: both operate in a segment growing faster than the overall insurance market, and both were taking share within it.
Four things support the case: it prices risk better than its competitors, it has room to roughly double its share of the market, its single technology platform lets it quote faster and cheaper than rivals running older systems, and CEO Mike Kehoe reinvests the profits well. The target is 10-20% growth a year for a long time.
The reason to buy it now is pure arithmetic. The shares fell 15% over the past year while earnings per share rose 15% — so you are paying about 30% less for each dollar of profit than a year ago, at one of the lowest valuations in the company's history. The model puts the expected return at 14.6% a year.
Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.