The truth behind the headlines
Topicus’ Q2
Topicus reported what I would categorize as an overall strong quarter yesterday. I believe there are certain things worth pointing out that should help contextualize the headline numbers (there’s always relevant info under the hood). Let’s jump right in.
Revenue grew 18% in Q2 and stood at +20% in H1 2026, with expenses growing slightly slower or in line with revenue:
Some people have asked me why revenue is not growing faster in 2026 considering that 2025 was a record capital deployment year for Topicus. Fair concern, but there’s an explanation. Topicus deployed around €700 million into acquisitions in 2025 BUT around €400 million of this amount was deployed into the purchase of Asseco shares. Topicus built a 24% stake in the Polish VMS giant in 2025, and this investment is accounted for as follows in Topicus’ accounts:
The Company applies the equity method of accounting to its investment in Asseco as a result of its ability to exercise significant influence over Asseco. Under the equity method of accounting, the investment is initially recognized at cost and is subsequently adjusted to reflect Topicus’ share of profit or loss and other comprehensive income of Asseco.
The above means in plain English that Asseco’s revenue is not consolidated in Topicus’ accounts but rather that Topicus reports the changes in the fair value of its Asseco investment using a line in the P&L called “share in net (income) loss of equity investee.” Topicus reported a €10 million gain this quarter and €20 million over the first six months of the year from its Asseco investment. The implications of this are ultimately that capital deployment doesn’t show in revenue growth but rather in income and in Free Cash Flow if the investee pays dividends (which they did!). This is not a problem once understood because what shareholders should ultimately care about is free cash flow.
Topicus’ Free Cash Flow Available to shareholders saw a significant improvement in Q2 driven by a €59 million dividend paid by Asseco:
Even though many people believe that this dividend should be “excluded” when thinking about Topicus’ normalized FCFA2S, I disagree and actually think it should be the opposite or else we would be understating the company’s cash flow. The rationale is that Topicus owns a significant stake in a business that pays out dividends, and the company can rightfully register said dividends as free cash flow. I am pretty sure that, if Topicus were consolidating Asseco’s entire Free Cash Flow in its financials (later diminishing it proportionally through the non-controlling interests), nobody would be claiming that it should be adjusted out.
I also believe this event somewhat reduces the risk of CSU’s “new” PEMs strategy. Recall that CSU and Topicus (which is already used to PEMs) have claimed that they would increasingly invest in stakes of publicly traded companies taking advantage of the SaaSpocalipse. While great for capital deployment, many people argued that this could result in poor FCF conversion because they would ultimately depend on the investee returning cash as dividends. This remains a risk and is likely to be one on a case-by-case basis, but at least here we see that FCF is making it into the company’s books. Let’s not forget that Topicus invested €413 million into Asseco last year and has already received a €60 million dividend (not a bad 1-year return). To this we must add that Topicus was able to buy its Asseco stake at 85 PLN, and Asseco’s shares are now worth 209 PLN.
Now, staying on the topic of capital deployment, one can’t deny that the capital deployed thus far in 2026 has been “meh.” Topicus deployed €40 million into acquisitions in Q2, bringing the H1 total to €62.5 million. If we add the “subsequent events” figure (i.e., what the company has deployed thus far in Q3) we get to YTD capital deployment of around €119 million. This trails considerably what Topicus deployed in 2025 (€700 million) but it needs some context.
For starters, assuming that Topicus will generate €262 million in FCFA2S this year (last year’s figure adding 20% growth), then the company has deployed around 45% of its (expected) 2026 FCFA2S while being 58% through the year. Not a perfect match, but nothing bad either when assuming that Topicus must reinvest 100% of its FCFA2S every year. We must also not forget that this metric (capital deployment over FCFA2S) was 222% in FY 2025.
Capital deployment (when it’s done how it should be done) is inherently lumpy. I remember that similar capital deployment concerns surfaced in 2024 when capital deployment was “only” €153 million for the full year. Topicus followed 2024 with a €700 million capital deployment year. So, there’s not really much that we can read into. Who knows, maybe Topicus deploys a lot of capital in Q3 and Q4 and capital deployment figures end up looking exceptional in 2026 as well.
The other interesting thing about all of this is that Topicus took advantage of its slower capital deployment to significantly improve its financial position. Cash stayed constant but Topicus repaid quite a bit of debt to bring the net debt position down to €144.4 million from €366 million:
This, added to the fact that there are no large payments of the term loans due until 2032, makes me optimistic in terms of go-forward capital deployment. The thing is that we’ll never know when Topicus will find opportunities to deploy capital, but we do know that the financial position (especially considering that Topicus’ management is not afraid of leverage) will allow the company to act on them when they present themselves.
The last thing I believe is worth discussing (before going into the valuation) is organic growth. The headline number came in at 4%, but we should look under the hood. Organic growth in maintenance revenue was 6% and has been above 6% for a very long time. In fact, Topicus has never reported a quarter of less than 6% organic growth in maintenance and recurring, although it would be nice to see it tick back up:
All in all, good report from Topicus in which the headline figures (as always) require context.
But, what about the valuation?