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Hi, I did a full DCF on Constellation Software (CSU.TO), framing CSU as an acquisition-led capital allocator rather than a conventional “organic SaaS” story. The central question in my view is not whether VMS grows quickly on its own, but whether CSU can continue deploying capital into niche, mission-critical vertical market software at returns above its cost of capital as the base scales... That’s more of a fundamentals type of question though, here are the current numbers from my analysis:
tl;dr:
WACC: 6.2% (Canada 10Y 3.40%, ERP 4.23%, beta 0.73, debt weighted at gross interest-bearing debt)
Revenue growth: 15% (2026), then fades toward 3% terminal
EBIT margin: 12% -> 17% by Year 10
Tax: 28%
Incremental ROIC (deployment): 18%
Maintenance capex: 0.6% -> 0.5% of revenue
Result: Intrinsic value = C$3,643/share
Potential Upside: 31%
Margin of Safety: 23.7%
Verdict: Undervalued
Actual methodology & assumptions:
The model is built unlevered and acquisition-consistent. Because CSU’s reported growth is primarily acquisition-driven, I explicitly charge an acquisition reinvestment requirement so future acquired cash flows are not assumed to arrive “for free.”
in my calculations, FCFF is modelled via an ROIC-based reinvestment identity (FCFF = NOPAT - ΔIC), reconciled back into a cash-flow bridge.
Main assumptions:
Revenue Forecast (Years 1-10)
Year 1 (2026) Growth: 15.0%
Years 2-5 (2027-2030): Decelerating from 15% to 10%
2027E: 15.0%
2028E: 13.0%
2029E: 11.0%
2030E: 10.0%
Years 6-10 (2031-2035): Fading to 3.0% terminal growth rate
2031E: 9.0%
2032E: 8.0%
2033E: 6.5%
2034E: 4.5%
2035E: 3.0% (terminal growth rate)
Start EBIT Margin: 12.0% in Year 1
Long-Run Margin Path: Gradually expands to 17% by Year 10
Tax Rate: 28.0% (normalised)
Capex: 0.6% of revenue in the near term, fading toward 0.5% in the terminal year
Net Working Capital (NWC): ΔNWC = -0.1% to -0.2% of incremental revenue, fading to 0% by the terminal period
ROIC: incremental ROIC of 18% for the acquisition reinvestment engine (base case)l
Free Cash Flow to the Firm:
calculated as:
FCFF = NOPAT + D&A - Maintenance Capex - ΔNWC - Acquisition Reinvestment,
where NOPAT = EBIT × (1 − Tax Rate).
**WACC**
The Weighted Average Cost of Capital (WACC) assumptions & calculation:
Risk-Free Rate (Rf): 3.40%
Equity Risk Premium (ERP): 4.23%
Beta (β): 0.73
Cost of Equity (Ke):
Ke = Rf + β x ERP
Ke = 3.40% + 0.73 x 4.23%
Ke = 6.49%
Pre-Tax Cost of Debt (Kd): 5.00%
Tax Shield: 28%
After-Tax Cost of Debt:
Kd (1 - t) = 5.00% x (1 - 0.28) = 3.6%
Capital Structure:
Share price (Jan 22, 2026 close): C$2,713.02
Shares outstanding: 21,191,530
Equity value (market cap): 2,713.02 (Jan 22, 2026 close) × 21,191,530 = C$57.49B
Total debt (Sep 30 2025): $3.985B USD
USD/CAD spot (Jan 22, 2026): 1.378
Debt in CAD = 3.985B x 1.378 = C$5.49B
Weights (gross debt):
Equity weight (E): 91.3%
Debt weight (D): 8.7%
WACC = (E/V x Ke) + (D/V x Kd x (1 − t))
WACC = (0.913 × 6.49%) + (0.087 × 3.6%) = 5.93% + 0.31% = 6.24, rounded to:
**WACC = 6.2%**
Terminal Growth Rate (g): 3.0%
… after more calculations (it's already too boring, sorry... all calculations are in the full article), the result for Present value of Terminal Value in CAD:
PV(TV) (CAD) = 443.00 × (15.37 / 100) = 443.00 × 0.1537 = C$68.09B,
then:
PV(FCFF Years 1-10): C$10,789M
PV(Terminal Value): C$68,077M
EV: C$78,866M (= PV(FCFF) + PV(TV))
Bridge to equity value
\+ Cash & cash equivalents:
CSU reported cash = $2,770m (USD) at Sep 30, 2025.
Converted at USD/CAD = 1.378, i.e. C$3,818M.
\- Debt:
$3,985m (USD) at Sep 30, 2025.
Converted at USD/CAD = 1.378, i.e. C$5,493M.
Equity Value = 78,866 + 3,818 − 5,493 = C$77,191M
Shares outstanding: 21,191,530
**Intrinsic Value**
Value per share = 77,191,000,000 / 21,191,530 = **C$3,643** (base case)
Bear Case: C$2,401 / share
Bull Case: C$5,811/share
Margin of Safety = 1 - (Current Price / Intrinsic Value)
Margin of Safety = 1 - (C$2,781.11/ C$3,643) = 23.365% (rounded to 23.7%)
Verdict: Undervalued
Disclaimer: I do own CSU.TO
For anyone interested, the whole analysis with all of the calculations, assumptions and assumed FCFF table can be found here (for free): https://hatedmoats.substack.com/p/constellation-software-dcf-valuation
I'd love to hear your thoughts on the model structure and assumptions used, and how you view CSU in general!
have a nice weekend!

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