Intrinsic value of Artesian Resources Cl A - ARTNA

Previous Close

$36.32

  Intrinsic Value

$24.79

stock screener

  Rating & Target

sell

-32%

  Value-price divergence*

-9%

Previous close

$36.32

 
Intrinsic value

$24.79

 
Up/down potential

-32%

 
Rating

sell

 
Value-price divergence*

-9%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ARTNA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.60
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
Revenue, $m
  71
  83
  88
  93
  98
  103
  109
  115
  121
  127
  134
  141
  148
  155
  163
  172
  181
  190
  200
  210
  220
  232
  243
  256
  269
  282
  296
  311
  327
  343
  361
Variable operating expenses, $m
 
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
  48
  50
Fixed operating expenses, $m
 
  44
  45
  46
  47
  49
  50
  51
  52
  54
  55
  56
  58
  59
  61
  62
  64
  65
  67
  69
  70
  72
  74
  76
  78
  80
  82
  84
  86
  88
  90
Total operating expenses, $m
  52
  56
  57
  59
  61
  63
  65
  67
  69
  72
  74
  76
  79
  81
  84
  86
  89
  91
  95
  98
  101
  104
  108
  112
  115
  119
  123
  127
  131
  136
  140
Operating income, $m
  27
  28
  31
  34
  37
  40
  44
  47
  51
  56
  60
  65
  69
  75
  80
  86
  92
  98
  105
  112
  119
  127
  135
  144
  153
  163
  173
  184
  196
  208
  220
EBITDA, $m
  36
  37
  41
  44
  48
  52
  56
  61
  65
  70
  75
  81
  86
  92
  99
  105
  112
  120
  128
  136
  144
  154
  163
  173
  184
  195
  207
  220
  233
  247
  261
Interest expense (income), $m
  7
  7
  8
  9
  10
  12
  13
  14
  16
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  36
  39
  42
  44
  47
  50
  53
  57
  60
  64
  68
  72
Earnings before tax, $m
  21
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
  47
  51
  54
  58
  62
  66
  71
  75
  80
  86
  91
  97
  103
  110
  117
  124
  132
  140
  149
Tax expense, $m
  8
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  25
  26
  28
  30
  32
  33
  36
  38
  40
Net income, $m
  13
  15
  17
  18
  19
  21
  23
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  52
  55
  59
  62
  67
  71
  75
  80
  85
  91
  96
  102
  108

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  451
  477
  503
  531
  560
  590
  621
  654
  689
  725
  763
  803
  845
  888
  934
  982
  1,032
  1,085
  1,140
  1,198
  1,259
  1,323
  1,390
  1,461
  1,534
  1,612
  1,693
  1,778
  1,868
  1,962
  2,061
Adjusted assets (=assets-cash), $m
  451
  477
  503
  531
  560
  590
  621
  654
  689
  725
  763
  803
  845
  888
  934
  982
  1,032
  1,085
  1,140
  1,198
  1,259
  1,323
  1,390
  1,461
  1,534
  1,612
  1,693
  1,778
  1,868
  1,962
  2,061
Revenue / Adjusted assets
  0.157
  0.174
  0.175
  0.175
  0.175
  0.175
  0.176
  0.176
  0.176
  0.175
  0.176
  0.176
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
  0.175
Average production assets, $m
  128
  135
  143
  150
  159
  167
  176
  186
  195
  206
  216
  228
  239
  252
  265
  278
  293
  308
  323
  340
  357
  375
  394
  414
  435
  457
  480
  504
  530
  556
  584
Working capital, $m
  -4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  18
Total debt, $m
  111
  129
  147
  166
  186
  207
  229
  252
  276
  301
  327
  355
  383
  414
  445
  479
  513
  550
  588
  628
  670
  715
  761
  810
  861
  914
  971
  1,030
  1,092
  1,157
  1,225
Total liabilities, $m
  312
  330
  348
  367
  387
  408
  430
  453
  477
  502
  528
  556
  584
  615
  646
  680
  714
  751
  789
  829
  871
  916
  962
  1,011
  1,062
  1,115
  1,172
  1,231
  1,293
  1,358
  1,426
Total equity, $m
  139
  147
  155
  163
  172
  182
  191
  202
  212
  223
  235
  247
  260
  274
  288
  302
  318
  334
  351
  369
  388
  408
  428
  450
  473
  496
  521
  548
  575
  604
  635
Total liabilities and equity, $m
  451
  477
  503
  530
  559
  590
  621
  655
  689
  725
  763
  803
  844
  889
  934
  982
  1,032
  1,085
  1,140
  1,198
  1,259
  1,324
  1,390
  1,461
  1,535
  1,611
  1,693
  1,779
  1,868
  1,962
  2,061
Debt-to-equity ratio
  0.799
  0.880
  0.950
  1.020
  1.080
  1.140
  1.200
  1.250
  1.300
  1.350
  1.390
  1.430
  1.470
  1.510
  1.550
  1.580
  1.610
  1.650
  1.670
  1.700
  1.730
  1.750
  1.780
  1.800
  1.820
  1.840
  1.860
  1.880
  1.900
  1.910
  1.930
Adjusted equity ratio
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308
  0.308

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  15
  17
  18
  19
  21
  23
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  52
  55
  59
  62
  67
  71
  75
  80
  85
  91
  96
  102
  108
Depreciation, amort., depletion, $m
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
Funds from operations, $m
  32
  25
  27
  29
  31
  33
  35
  37
  40
  43
  45
  48
  51
  55
  58
  62
  66
  70
  74
  79
  84
  89
  94
  100
  106
  112
  119
  126
  133
  141
  150
Change in working capital, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  30
  25
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  58
  62
  65
  70
  74
  78
  83
  88
  94
  99
  105
  112
  118
  125
  133
  140
  149
Maintenance CAPEX, $m
  0
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
New CAPEX, $m
  -28
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
Cash from investing activities, $m
  -28
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
Free cash flow, $m
  2
  8
  9
  10
  12
  13
  14
  15
  17
  18
  20
  21
  23
  25
  27
  29
  32
  34
  37
  39
  42
  45
  48
  52
  55
  59
  63
  67
  72
  77
  82
Issuance/(repayment) of debt, $m
  -5
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  46
  49
  51
  54
  56
  59
  62
  65
  68
Issuance/(repurchase) of shares, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  6
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  46
  49
  51
  54
  56
  59
  62
  65
  68
Total cash flow (excl. dividends), $m
  8
  26
  28
  29
  31
  34
  36
  38
  41
  43
  46
  49
  52
  55
  59
  63
  66
  70
  75
  79
  84
  89
  95
  100
  106
  113
  119
  126
  134
  142
  150
Retained Cash Flow (-), $m
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  18
  19
  21
  23
  24
  26
  28
  30
  32
  34
  37
  39
  42
  45
  48
  51
  54
  58
  61
  65
  70
  74
  79
  84
  89
  94
  100
  106
  113
  119
Discount rate, %
 
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.51
  9.99
  10.49
  11.01
  11.57
  12.14
  12.75
  13.39
  14.06
  14.76
  15.50
  16.27
  17.09
  17.94
  18.84
  19.78
  20.77
  21.81
  22.90
  24.04
  25.25
  26.51
  27.83
  29.22
PV of cash for distribution, $m
 
  17
  17
  17
  16
  16
  16
  15
  14
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
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Artesian Resources Corporation, through its subsidiaries, provides water, wastewater, and other services on the Delmarva Peninsula. The company distributes and sells water to residential, commercial, industrial, municipal, and utility customers in the states of Delaware, Maryland, and Pennsylvania. It also offers water for public and private fire protection to customers in its service territories. In addition, the company provides contract water and wastewater services, water and sewer service line protection plans, and wastewater management services, as well as design, construction, and engineering services. As of December 31, 2015, it served approximately 81,400 metered water customers through 1,218 miles of transmission and distribution mains. The company was founded in 1905 and is headquartered in Newark, Delaware.

FINANCIAL RATIOS  of  Artesian Resources Cl A (ARTNA)

Valuation Ratios
P/E Ratio 25.5
Price to Sales 4.2
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 11.1
Price to Free Cash Flow 165.8
Growth Rates
Sales Growth Rate 2.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 74.1%
Total Debt to Equity 79.9%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 3.6%
Return On Total Capital 5.2%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 9.6%
Return On Equity - 3 Yr. Avg. 8.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 46.8%
EBITDA Margin - 3 Yr. Avg. 45.6%
Operating Margin 34.2%
Oper. Margin - 3 Yr. Avg. 32.4%
Pre-Tax Margin 26.6%
Pre-Tax Margin - 3 Yr. Avg. 24.5%
Net Profit Margin 16.5%
Net Profit Margin - 3 Yr. Avg. 14.9%
Effective Tax Rate 38.1%
Eff/ Tax Rate - 3 Yr. Avg. 39.2%
Payout Ratio 61.5%

ARTNA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARTNA stock intrinsic value calculation we used $79 million for the last fiscal year's total revenue generated by Artesian Resources Cl A. The default revenue input number comes from 2016 income statement of Artesian Resources Cl A. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ARTNA stock valuation model: a) initial revenue growth rate of 5.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.1%, whose default value for ARTNA is calculated based on our internal credit rating of Artesian Resources Cl A, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Artesian Resources Cl A.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ARTNA stock the variable cost ratio is equal to 13.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $43 million in the base year in the intrinsic value calculation for ARTNA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.2% for Artesian Resources Cl A.

Corporate tax rate of 27% is the nominal tax rate for Artesian Resources Cl A. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ARTNA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ARTNA are equal to 162%.

Life of production assets of 14.2 years is the average useful life of capital assets used in Artesian Resources Cl A operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ARTNA is equal to 5.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $139 million for Artesian Resources Cl A - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 8.999 million for Artesian Resources Cl A is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Artesian Resources Cl A at the current share price and the inputted number of shares is $0.3 billion.

RELATED COMPANIES Price Int.Val. Rating
MSEX Middlesex Wate 38.26 19.50  sell
YORW York Water 32.90 12.23  str.sell
AWK American Water 82.08 30.91  str.sell
WTR Aqua America 33.76 12.77  str.sell
CTWS Connecticut Wa 55.60 18.68  str.sell
AWR American State 49.13 24.82  sell
SJW SJW Group 54.20 61.32  buy
GWRS Global Water R 9.47 8.84  hold
CWT California Wat 36.90 15.28  str.sell

COMPANY NEWS

▶ 5 Top Dividend Stocks in Water   [Aug-19-17 10:31AM  Motley Fool]
▶ Artesian Resources posts 2Q profit   [Aug-04-17 01:12AM  Associated Press]
▶ Is It Time to Invest in Water?   [May-25-17 06:10PM  GuruFocus.com]
▶ Artesian Resources posts 4Q profit   [Mar-08-17 07:34PM  Associated Press]
▶ The Top 5 Micro Cap Utility Stocks for 2016 (ARTNA, DGAS)   [Jan-29-16 11:11AM  at Investopedia]
▶ Artesian Declares Common Stock Dividend   [Jan-27-16 05:37PM  at noodls]
▶ NYSSAs 19th Annual Water Utilities Industry Conference   [Nov-30  01:31PM  Business Wire]
▶ NYSSAs 19th Annual Water Utilities Industry Conference   [Nov-25  01:03PM  Business Wire]
Stock chart of ARTNA Financial statements of ARTNA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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