DCF Studio

    CSU.TO · TOR · Technology

    Constellation Software Inc.

    Also onConsensus Drift

    Implied value per share

    CAD 6179.91

    Market price

    CAD 2843.09

    Implied upside

    +117.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 1.3982

    AdjustedReports in USD, trades in CAD. Modelled in USD, converted at the end.
    AdjustedReported capital expenditure averages just 0.59% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.91% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.
    NoteRisk-free rate is an assumption: CAD assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    CAD 6179.91+117.4%
    Exit multiple
    CAD 8421.75+196.2%
    Market price
    CAD 2843.09

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn3bn7bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 14.0bnUSD 16.9bnUSD 20.4bnUSD 24.6bnUSD 29.7bn+20.6%
    EBITUSD 2.3bnUSD 2.8bnUSD 3.4bnUSD 4.1bnUSD 4.9bn+20.6%
    NOPATUSD 1.7bnUSD 2.0bnUSD 2.5bnUSD 3.0bnUSD 3.6bn+20.6%
    Add depreciation & amortisationUSD 1.7bnUSD 2.1bnUSD 2.5bnUSD 3.0bnUSD 3.6bn+20.6%
    Less capital expenditureUSD -267.2mUSD -322.4mUSD -388.9mUSD -469.1mUSD -565.8m+20.6%
    Less increase in working capitalUSD -48.4mUSD -58.4mUSD -70.4mUSD -85.0mUSD -102.5m+20.6%
    Free cashflow to firmUSD 3.1bnUSD 3.7bnUSD 4.5bnUSD 5.4bnUSD 6.5bn+20.6%
    Discount factor0.96520.89920.83770.78040.7271-
    Present valueUSD 3.0bnUSD 3.3bnUSD 3.8bnUSD 4.2bnUSD 4.7bn+12.4%
    Present Value Of The ForecastUSD 19.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.30%CAD assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta0.799Reported 0.700, pulled toward 1.0 (Blume)
    Cost of equity7.69%Risk-free + beta x equity risk premium
    Cost of debt4.96%Interest expense / average total debt
    Market capitalisationUSD 60.2bn91.2% of capital
    Total debtUSD 5.8bn8.8% of capital, book value as a proxy
    Tax rate26.5%Effective, capped at statutory
    WACC7.34%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 4419.91

    80% of EV

    Forecast FCFF, final year
    USD 6.5bn
    Capex at depreciation, working capital in reinvestment
    USD 5.8bn
    Less reinvestment at g/ROIC (13.9% of NOPAT)
    USD -808.3m
    Capitalised
    USD 5.0bn
    ROIC (reported)
    18.0%
    Terminal value, undiscounted
    USD 106.3bn
    Terminal value, discounted
    USD 77.3bn
    Enterprise value
    USD 96.3bn
    Less net debt
    USD 2.6bn
    Equity value
    USD 93.7bn

    Exit at 18.0x EBITDA

    Value per shareUSD 6023.28

    85% of EV

    Terminal value, undiscounted
    USD 153.0bn
    Terminal value, discounted
    USD 111.2bn
    Enterprise value
    USD 130.3bn
    Less net debt
    USD 2.6bn
    Equity value
    USD 127.6bn

    Spread between methods: 31%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.34%6093.266727.937583.988803.3010682.09
    6.34%4805.625153.465590.386156.386919.66
    7.34%3958.914168.334419.874728.105115.15
    8.34%3359.743493.693649.683833.884055.03
    9.34%2913.403002.683104.263221.063356.98

    Outlined: this model. Green text: above today's price of 2033.39. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year20.6%2.4%-18.2pp
    EBIT margin16.5%2.1%-14.3pp
    Discount rate7.3%12.8%+5.5pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.