Topicus Pt. 2, How To Value Topicus

Navigating the complexity of a labyrinth ownership structure

DISCLAIMER & DISCLOSURE: The author holds a position in Topicus at the date of publication but that may change. The views expressed are those of the author and may change without notice. The author has no duty or obligation to update this information. Some content is sourced from third parties believed to be reliable, but accuracy is not guaranteed. Forward-looking statements involve assumptions, risks, and uncertainties, meaning actual outcomes may differ from those envisaged in this analysis. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing.

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How Do I Value Topicus?

The Topicus (TSX: TOI) story is one of disciplined capital allocation within a labyrinth ownership structure. That makes it exceptionally difficult to understand and it usually ends up in the ‘too difficult’ pile on the desk of investors.

Following on from my Topicus deep dive earlier this week, which primarily explored the qualitative aspects of this business, I have been bombarded with direct messages, comments and emails. Everyone loves the business and its management, but many are lost in the numbers.

Although you’ll need to navigate your own way through the complexity, this is an attempt to shine a light on some of the dark spots in the labyrinth.

When Topicus came to market through its 2021 IPO, few could have predicted the intricate financial web of minority and majority stakes in other businesses that would emerge by 2025.

Fortunately, Topicus does a great job of breaking out ‘Free Cash Flow Available To Shareholders’ (FCFA2S), but not even this helps in relation the significant minority stake in Asseco Poland which it acquired this year.

FCFA2S has traced a remarkable journey, from €87.5 million in its debut year, plummeting to €54.2 million in 2022 (explained by the one-time impact of a €66.6 million preferred securities dividend), then rebounding strongly to €123.4 million in 2023 and €177.4 million in 2024.

Understanding Topicus’s cash generation requires appreciating its distinctive ownership structure.

The company holds roughly 64% of Topicus Coop, with the remainder owned by non-controlling interests. This means that when calculating free cash flow available to shareholders, Topicus must carefully deduct the portion attributable to these minority stakeholders. The methodology starts with cash flows from operations, then subtracts interest paid on lease obligations, interest on other facilities, credit facility transaction costs, lease repayments, and capital expenditures for property and equipment. What remains after these adjustments - and crucially, after removing the non-controlling interests’ share - represents the cash truly available to Topicus shareholders.

While Topicus owns approximately 63% of Topicus Coop, the cash flow deductions for non-controlling interests have been around 39% of adjusted cash from operations. This apparent discrepancy (adding to more than 100%) reflects additional minority stakes at various subsidiary levels beyond the main cooperative structure, creating layers of ownership that must be carefully unpacked to arrive at shareholder-level cash flows.

The table below breaks it down, year by year:

In relation to the consolidated numbers, the portion of free cash flow attributable to its shareholders is growing over time:

• 2023 ~60.4%

• 2024 ~61.1%

• 2025 ~62.85%

This is not an insignificant rate of increase. Once again, if the valuation of Topicus is the net present value of future cash flows, this needs to be factored in to the pricing model. Simply taking today’s number and extrapolating 10 or 20 years into the future will lead to entirely the wrong conclusions.

Then comes a curve ball in the form of Asseco Poland, in which Topicus acquired a significant minority interest earlier this year - spread across two tranches.

In January 2025, Topicus acquired a 9.99% stake in this Polish vertical software acquirer, followed by an additional 14.84% of treasury shares in October 2025, bringing total ownership to approximately 24.83%. This was a strategic move that would add a new dimension to Topicus’s cash flow profile and introduce a web of accounting complexities that cause investors issues in their attempts to understand the impact on the Topicus FCFA2S.

Asseco Poland operates under IFRS 10 consolidation rules with a twist that fundamentally alters how one must think about cash attribution.

When Asseco makes an acquisition, it takes a majority stake and uses a combination of put and call options to guarantee the transfer of remaining shares, with the strike price defined by formula. Essentially, Asseco can ‘call’ the residual share early, or if it fails to do so, the exiting shareholders can ‘put’ them to Asseco at the conclusion of a defined earn-out period.

This means that it isn’t a question of ‘if’ Asseco will take absolute control, but ‘when’. The outcome is guaranteed. As a result, the IFRS consolidation rules deem Asseco to effectively controls 100% of the subsidiary’s economic benefits from day one. It consolidates the entire business from the outset, even though it doesn’t own all of it yet. There’s no separate recognition of non-controlling interest on the balance sheet or income statement. All of the subsidiary’s profits and net assets are attributed to Asseco, with zero carve-out for minority shareholders.

When Asseco subsidiaries pay dividends to minority holders, Asseco records these payments as financial expenses rather than distributions to non-controlling interests.

This is known as “present ownership” accounting. The practical effect is that all subsidiary profits appear to belong to Asseco’s parent company, even though economic interests are shared.

On the surface, this may seem to be a distortion of reality, but there is method to the madness.

The companies Asseco acquires, in which it initially holds a majority stake that will ultimately become full ownership, generate earnings. On the face of it, you may think that those earnings are to be shared between majority and minority shareholders in proportion to their share of the business. But that’s not what happens in practice.

Part of those earnings may be paid out as dividends to minority shareholders - usually on a discretionary basis, but sometimes defined contractually. Since those minority shareholders are ultimately exiting the business, those dividend payments effectively form a deferred part of the final acquisition cost which will be paid out of the income of the acquired company rather than capital from Asseco. As for the retained earnings that Asseco will invest in organic or acquisitive growth, the full long-term benefit will accrue to the parent company, not to the exiting minority shareholders of the subsidiary that generated those profits. So, Asseco does effectively controls 100% of the subsidiary’s economic benefits from day one.

Asseco will eventually harvest the benefit of seeds sown at the cost of exiting shareholders - a nice model!

In any event, if the valuation of Asseco is the net present value of all future cash flows, which cash flows will you include in that calculation? Its shareholders receive their share of distributions plus the benefit of 100% of retained earnings right now. Not long from now, after the put/call option structure results in Asseco taking full control of the subsidiary, it will enjoy the benefit of 100% of cash flow produced. This means that investors who make the usual minority shareholder deductions to Asseco earnings will arrive at entirely the wrong valuation - they are not playing with a full deck of cards.

This accounting treatment creates a minefield for anyone trying to calculate how much cash Topicus should expect from its Asseco stake.

One solution is a distribution-based methodology. Some argue that it avoids double counting by focusing on actual cash dividends received from Asseco rather than proportional cash flow allocation - it ensures a cleaner shareholder-level attribution.

One needs to deduct applicable withholding taxes (~15%) and convert from Polish złoty to Euros at the prevailing exchange rate, but that would reveal how much cash Topicus generates from its Asseco investment.

In June 2025, Topicus received its first dividend from Asseco. At this stage it had only acquired a 9.99% stake, in respect of which it received €7.7 million gross - reflecting Asseco’s dividend of PLN 3.94 per share.

The October tranche of shares didn’t qualify for this payment because it closed after the June record date and since Asseco pays dividends annually in June, this would be the cash return on investment received by Topicus in its financial year 2025.

For 2026, expectations center on approximately €17 million in net dividends to Topicus, though this could range from €13 million to €20 million depending on Asseco’s payout decisions and FX rates.

Of course, these dividend receipts don’t come free. To finance the Asseco investment, Topicus closed a €200 million senior unsecured loan on June 30, 2025, carrying an all-in cost of roughly 5%. This generates approximately €5 million in interest expense for the second half of 2025 and €10-11 million for the full year 2026. The company also expanded its revolving credit facility to €700 million capacity, with drawn amounts averaging around 4% cost. These incremental funding costs must be subtracted when calculating the net contribution of the Asseco stake to included in the Topicus FCFA2S.

For 2025, base case projections show consolidated free cash flow available to shareholders of €187 million, comprising €184 million from Topicus’s base operations, plus €7.7 million in Asseco dividends, minus €5 million in incremental funding costs. The net contribution from Asseco in 2025 is therefore a modest €2.7 million. For 2026, the base case rises to €201 million total, with €195 million from operations, €17 million from Asseco dividends, and €11 million in funding costs, yielding a €6 million net contribution from the Polish investment.

There is sensitivity around these numbers - Currency exposure, Polish withholding tax rates, interest rates impacting financing costs and Asseco’s dividend policy decisions all introduce variability into the projections.

I’ve broken it down below for FY25 and FY26, with three scenarios for each year:

The issue with this line of thinking is that it completely overlooks the real return potential of Topicus’s investment in Asseco. On paper, a normalized net contribution of about €6 million on an investment of roughly €413 million works out to a modest 1.45% annual yield. But clearly, Topicus didn’t put hundreds of millions into a Polish software group just to earn a 1.5% yield. That tells us the distribution-based view of this investment is far too narrow and arguably the wrong way to look analyze the Asseco investment.

To drive the point home, imagine Asseco stopped paying dividends altogether because it found so many new opportunities to reinvest in its own growth. Would that suddenly make Topicus’s stake worthless? Of course not.

Unlike its other investments, this investment isn’t primarily about extracting cash for reinvestment elsewhere, it’s about unlocking organic growth potential within both companies. Topicus acquired its stake at an excellent valuation, and the market has since rewarded that move with substantial multiple expansion. But the real upside may still be ahead.

The partnership provides Topicus with seats in the boardroom of Asseco and opens the door to new markets, allowing both companies to cross-sell their products in each other’s regions. The strategic and operational synergies are significant, and they set the stage for meaningful organic growth over the long term.

Additionally, something many miss, is that the Topicus investment in Asseco was achieved through the acquisition of existing shares and a notable purchase of 12.32 million treasury shares directly from Asseco for PLN 1.05 billion. An existing shareholders’ agreement allows for the distribution of proceeds from the sale of these treasury shares starting from 2026. Market chatter suggests a potential annual distribution of PLN 518 million (€122 million) in both 2026 and 2027. Should this scenario materialize, Topicus’s 24.83% stake would entitle it to a significant pre-tax windfall - it would potentially recover a large part of the price it paid for its stake in Asseco, though at this time it remains speculative and policy-dependent.

If the special dividends are paid, the income would be subject to Polish withholding tax on dividends. However, as Topicus’s investment is held through Dutch subsidiaries, the double taxation treaty between Poland and the Netherlands would come into play. This treaty provides for a reduced withholding tax rate of 0% or 5% if specific conditions are met, such as the recipient company holding a certain percentage of the paying company’s capital for a minimum period. Given the size and nature of Topicus’s holding, it is likely that they would qualify for the reduced rate.

Fluctuations in the PLN/EUR exchange rate could either enhance or diminish the value of the dividend in Euro terms.

Asseco has a history of consistent dividend payments. Its official dividend policy is to recommend a payout exceeding 50% of the company’s net profit, and in 2024 the company distributed roughly 52%. This indicates that there’s room for higher payouts if desired, though a rigid dividend policy runs counter to the approach of the Constellation Software group, of which Topicus is a part.

The shareholders’ agreement with the Adam Góral Family Foundation - Asseco’s founder and CEO - took effect when Topicus completed its second investment tranche, and it may give Topicus influence over Asseco’s future dividend policy and strategic direction.

From a shareholder’s perspective, higher levels of reinvestment would be far more value-accretive over time, provided those funds can earn strong returns and be deployed tax efficiently. In the less ideal scenario, Topicus could simply collect the dividends and reinvest them on its own. However, the 15% Polish withholding tax means that every zloty not reinvested effectively becomes a small windfall for the tax authorities - who, of course, have contributed no capital to the business’s growth.

In short, valuing Topicus based on FCFA2S captures only a part of the story and is entirely unreliable as a means of appraising the investment. Evaluating this company requires a qualitative assessment of the business to supplement any quantitative analysis.

Not that I am a fan of sell side analysts, but I include their approach to demonstrate how no two approaches are the same.

TD Cowen has opted for a 50/50 blend between discounted cash flow analysis and an EV/EBITDA multiple anchored on fiscal 2026 estimates, using a 25x target that represents a meaningful step up from their previous 22.5x. They’re working with a 10% discount rate and 3% terminal growth, assumptions that reflect confidence in long-term compounding.

RBC Capital Markets takes a different tack, anchoring on 29x their calendar 2027 EBITDA estimate with a DCF cross-check using a notably lower 7.7% cost of equity. The contrast is striking and illustrates how sensitive these valuations are to underlying assumptions about risk and growth sustainability.

TD Cowen’s 25x on FY26E versus RBC’s 29x on CY27E, the different discount rates, the varying terminal growth assumptions, highlights how much art remains in the science of valuation.

These aren’t right or wrong; they’re different ways of framing uncertainty about reinvestment intensity, competitive dynamics, and long-term sustainability. What they share is a common conclusion that Topicus deserves a premium to typical software multiples because of its demonstrated ability to compound through disciplined M&A, and that the Asseco investment represents opportunity rather than distraction.

What’s particularly intriguing is how analysts are handling the Asseco stake itself. Across the board, brokers treat it as a non-consolidated equity investment, which means Asseco’s operations don’t flow through Topicus’s income statement.

TD Cowen explicitly adds the market value of the stake to their equity bridge after backing out net debt and non-controlling interests, essentially treating it as a transparent piece of NAV. This makes sense when one considers that Topicus acquired its stake at PLN 85 per share and it has been trading over PLN 200 a few months later. The value of the acquisition has significantly improved the equity position of Topicus. TD Cowen is modeling dividend income of roughly €15 million to €20 million annually flowing to Topicus, a nice supplementary return on what amounts to a strategic option.

RBC and CIBC take slightly different presentational approaches but arrive at the same fundamental conclusion: this is a financial investment with strategic benefits, not an operational consolidation.

On the operational side, consensus expectations cluster around 4-5% organic growth in constant currency terms, with recent quarterly details showing licenses up 19%, hardware up 10%, maintenance up 7%, and services down 2%.

EBITDA margins are forecast in the 29-30% range. Cash conversion metrics remain robust, with free cash flow running at roughly 83-85% of adjusted EBITDA, supporting a path to €3.53 per share in free cash flow by calendar 2026 according to RBC’s projections.

The Asseco investment’s impact on capital structure is material but manageable. Leverage remains modest at roughly 0.7-0.8x EBITDA, leaving plenty of room for additional deployment. The company isn’t stretching its balance sheet dangerously, just using debt as a tool to accelerate what management sees as compelling opportunities.

What makes the valuation framework particularly interesting is how different brokers square the circle between premium multiples and execution risk. The question isn’t whether Topicus can maintain deployment velocity, recent quarters suggest they can, but whether they can do so without the IRR degradation that eventually catches up with most serial acquirers.

Peer comparisons are tricky. While there are plenty of programmatic acquirers out there, none enjoy the same structural advantages as the Constellation Software group. Their edge isn’t just about execution; it’s built into the way they operate. As discussed in Part 1, their acquisition process itself is a powerful competitive advantage.

Beyond that, the vertical software space they focus on is inherently capital-light. Returns on net tangible assets are high, scaling comes with minimal incremental cost, and there’s no capital tied up in inventory. The subscription-based nature of their businesses also creates a negative working capital profile, allowing free cash flow conversion to routinely exceed 100%. Meanwhile, economic goodwill continues to expand (better understand how these things factor into valuation).

For all these reasons, it doesn’t make much sense to compare Topicus with most other programmatic acquirers. A far more meaningful comparison is with its peers inside the Constellation Software group itself.

Topicus sits between Constellation’s more mature, diversified profile and Lumine’s higher-margin, more selective approach. Topicus may have found a sweet spot: European focus with enough runway for sustained deployment, decentralized management that can maintain quality and now the Asseco relationship as potential accelerant. It is also still very small relative to Constellation Software (market cap of $9 billion versus $60 billion), so it requires fewer acquisitions to move the needle - making growth easier to achieve.

The trading multiples tell their own story about market sentiment. EV/EBITDA on a LTM basis is hovering around 28x, which appears high compared to other Canadian software consolidators trading around 13x, and even above Constellation Software’s 22x. However, because of its faster pace of acquisitive growth, on a forward looking basis that multiple drops below 20x (remember from Part 1 that it has spent more on acquisitions in 2025 than the prior four years combined).

Looking at how Constellation Software has created shareholder value over time is revealing. When the company went public in 2006, its shares were priced at $17 CAD. By the end of fiscal 2024, they were trading around $4,267 CAD, an extraordinary compound annual growth rate of 35.9% over 18 years. It’s worth unpacking how those legendary returns were achieved.

The vast majority came from revenue growth, which isn’t surprising given Constellation’s acquisition-driven business model, supported by steady organic expansion. Revenue growth alone contributed 26.6 percentage points of the 35.9% CAGR. Multiple expansion added another 6.6%, while margin improvement contributed just 2.7%.

Interestingly, the share count remained unchanged, meaning no contribution from buybacks. That’s notable because the company has consistently paid a small dividend that, in hindsight, seems largely symbolic. An investor holding since the IPO would have collected a total of $90 CAD per share in dividends. Channeling that cash into repurchases would have been a far more accretive use of capital.

In dollar terms, the breakdown is shown on the chart below:

Constellation Software Total Shareholder Returns Attribution from 2006-2024

How does this compare with Topicus since it went public in 2021?

The IPO share price was $63 CAD and now it trades around $148 CAD. However, Topicus began life as a public company with a very inflated valuation. Constellation Software had already compounded at an astonishing 37% annually for nearly two decades, and investor enthusiasm was sky-high when Topicus was spun off. The IPO priced the business at a lofty 126 times earnings, and at one stage, the shares traded above 200 times earnings.

Since then, reality has set in. The market has cooled and valuation multiples have contracted. That correction alone has shaved roughly $19.65 CAD off shareholder returns over the past four years. Put another way, of the $104.65 CAD in total value generated through revenue growth and multiple expansion, about 18.8% was erased simply because the shares were initially overpriced. It’s a timely reminder that no matter how good the business, the entry price matters.

Just like Constellation, Topicus pays a token dividend from time to time. In total it has paid approximately $1.89 CAD per share. It’s a curious choice, given that the implied yield is insufficient to appease income seeking investors and those funds would deliver far more value if redirected toward buybacks or reinvestment in growth.

In dollar terms, the breakdown is shown on the chart below:

Topicus Inc Total Shareholder Returns Attribution from 2021

With the margin contraction now largely behind it, the pace of shareholder returns ought to pick up.

Valuation multiples are still not low, but when you’re deploying capital at 100% or more of free cash flow and maintaining high teens to low twenties IRRs, premium valuations follow. This isn’t a company husbanding cash for a rainy day - it’s built on the premise that intelligent, disciplined acquisition programs can compound shareholder value faster than almost any other capital allocation strategy.

The Asseco partnership fits into this narrative as both a deployment mechanism and a potential source of deal flow, though practitioners remain divided on whether it’s primarily about funnel expansion or financial optionality.

The real inflection point would be demonstrating that the Asseco stake is more than financial optionality, that it actually opens doors and accelerates European deployment. It all depends on execution and we all know how well the Constellation Software group does that.

Time will tell whether that confidence is well-placed.

I hope that this has helped you better understand the Topicus valuation. There are no easy answers, only you can decide if this fits your portfolio.

If you’ve not done so already, please take a look at part 1 which explore the more qualitative aspects of the Topicus thesis: