Andrey Omelchak, CEO and CIO, LionGuard Capital Management

FOCUS: North American small and mid-cap equities

Top Picks: Topicus.com, Boyd Group, Constellation Software

MARKET OUTLOOK:

At LionGuard Capital Management, we focus on investing in high-quality, mispriced businesses through a disciplined, bottom-up approach. We believe the market works wonders over time, and the most important decision an investor can make is to remain invested. Volatility is not something to fear—it is a powerful ally for those who understand fundamentals and have the conviction to act when others are fearful.

Today, we see panic-like pricing across many securities, including high-quality businesses with strong operations and growing earnings power. These are not companies in decline or impacted by tariffs, but ones caught in a market gripped by headlines and anxiety. In many cases, even minor fundamental issues trigger exaggerated downside reactions. There is no forgiveness.

We expect tariff-talk fatigue to set in when investors will be determined to keep owning strong businesses regardless of shifting trade rhetoric. As that unfolds, fundamentally sound companies will be re-rated irrespective of ongoing tariff changes.

We also expect to see increasing attention shift back to Canadian-listed equities. The pendulum has swung too far, and most of the country’s allocators are now under intense pressure to do the right thing. Sometimes it takes a good crisis to bring that clarity. This is one of those moments. We believe higher-quality Canadian-listed companies stand to benefit tremendously in the process.

We encourage investors to look beyond the noise. The disconnect between market prices and intrinsic value, especially for companies not impacted by tariffs, is creating great opportunities for those willing to take a longer view. At LionGuard, we are committed to take advantage of market volatility to create exceptional long-term value for our investors.

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TOP PICKS:

Topicus.com (TOI CVE)

A top pick due to its strong and consistent execution as a leading acquirer and operator of vertical market software businesses across Europe. A spin-out of Constellation Software, Topicus combines organic growth with disciplined acquisitions, delivering durable, high-margin recurring revenue. Its decentralized structure empowers entrepreneurial leaders, while recent results show solid organic growth, ability to deploy large sums of capital and strong cash flow generation. With a long runway for consolidation and reinvestment, we see Topicus as a premier compounder trading at an attractive valuation.

Boyd Group (BYD TSX)

A top pick and a proven long-term compounder, currently executing exceptionally well in a tough environment. Despite industry pressure from elevated insurance premiums and lower submission rates, Boyd continues to gain a lot of market share and invest in high-ROIC greenfield and brownfield locations. The collision repair market remains highly fragmented, and all other sizeable competitors are owned by private equity—making Boyd the only scaled public operator with a long consolidation runway ahead. If the market continues to undervalue the business, it stands as a prime acquisition target for PE.

Constellation Software (CSU TSX)

A top pick given its exceptional track record of value creation and its unique position as a serial acquirer of vertical market software businesses. The company has demonstrated a consistent ability to reinvest capital at high rates of return, generating strong free cash flow and long-term shareholder value. With a global reach, CSU continues to find attractive acquisition targets, supported by its decentralized structure and highly disciplined capital allocation framework. Recent efforts to invest in larger platforms and spinoffs of Lumine (LMN) and Topicus (TOI) only add to the long-term growth runway. We believe CSU remains a top compounder, and the market continues to underestimate the durability and especially the scalability of its business model. Its culture, capital discipline, and demonstrated ability to generate high-ROIC investments make it one of the most attractive businesses globally.

PAST PICKS: September 10, 2024

Lumine (LMN CVE)

• Then: $36.21
• Now: $40.88
• Return: 13%
• Total Return: 13%

Trisura Group (TSU TSX)

• Then: $39.27
• Now: $33.64
• Return: -14%
• Total Return: -14%

Knight Therapeutics (GUD TSX)

• Then: $6.04
• Now: $6.20
• Return: 3%
• Total Return: 3%

Total Return Average: 1%