Intrinsic value of Artesian Resources Cl A - ARTNA

Previous Close

$42.32

  Intrinsic Value

$38.85

stock screener

  Rating & Target

hold

-8%

  Value-price divergence*

+164%

Previous close

$42.32

 
Intrinsic value

$38.85

 
Up/down potential

-8%

 
Rating

hold

 
Value-price divergence*

+164%

*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 0.4

 

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
  10.50
  9.95
  9.45
  9.01
  8.61
  8.25
  7.92
  7.63
  7.37
  7.13
  6.92
  6.73
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.36
  5.32
  5.29
  5.26
Revenue, $m
  71
  87
  96
  105
  115
  124
  135
  145
  156
  168
  180
  192
  205
  219
  233
  247
  262
  278
  295
  312
  330
  348
  368
  388
  410
  432
  455
  480
  505
  532
  560
Variable operating expenses, $m
 
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  30
  32
  34
  36
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
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
  58
  61
  63
  66
  69
  71
  74
  77
  80
  83
  87
  89
  93
  96
  100
  104
  108
  112
  116
  120
  125
  130
  135
  140
  145
  151
  156
  162
  168
Operating income, $m
  27
  31
  37
  44
  51
  58
  66
  74
  82
  91
  100
  109
  119
  129
  140
  151
  162
  174
  187
  200
  213
  228
  243
  259
  275
  292
  310
  329
  349
  370
  392
EBITDA, $m
  36
  41
  48
  56
  64
  73
  81
  91
  100
  110
  120
  131
  142
  154
  166
  179
  192
  206
  220
  235
  251
  268
  285
  303
  322
  342
  362
  384
  407
  431
  456
Interest expense (income), $m
  7
  7
  9
  11
  13
  16
  18
  21
  23
  26
  29
  32
  35
  38
  41
  45
  48
  52
  56
  60
  64
  68
  73
  78
  83
  88
  93
  99
  105
  111
  118
Earnings before tax, $m
  21
  24
  29
  33
  38
  43
  48
  53
  59
  65
  71
  78
  84
  91
  98
  106
  114
  122
  131
  140
  149
  159
  170
  181
  192
  204
  217
  230
  244
  259
  274
Tax expense, $m
  8
  7
  8
  9
  10
  12
  13
  14
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
Net income, $m
  13
  18
  21
  24
  28
  31
  35
  39
  43
  47
  52
  57
  61
  67
  72
  77
  83
  89
  96
  102
  109
  116
  124
  132
  140
  149
  158
  168
  178
  189
  200

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
  499
  548
  600
  654
  711
  769
  830
  894
  960
  1,028
  1,099
  1,173
  1,250
  1,330
  1,413
  1,500
  1,590
  1,684
  1,782
  1,884
  1,991
  2,103
  2,219
  2,341
  2,468
  2,602
  2,741
  2,887
  3,039
  3,199
Adjusted assets (=assets-cash), $m
  451
  499
  548
  600
  654
  711
  769
  830
  894
  960
  1,028
  1,099
  1,173
  1,250
  1,330
  1,413
  1,500
  1,590
  1,684
  1,782
  1,884
  1,991
  2,103
  2,219
  2,341
  2,468
  2,602
  2,741
  2,887
  3,039
  3,199
Revenue / Adjusted assets
  0.157
  0.174
  0.175
  0.175
  0.176
  0.174
  0.176
  0.175
  0.174
  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
  0.175
  0.175
  0.175
Average production assets, $m
  128
  141
  155
  170
  186
  201
  218
  235
  253
  272
  291
  312
  333
  354
  377
  401
  425
  451
  477
  505
  534
  565
  596
  629
  664
  700
  738
  777
  818
  862
  907
Working capital, $m
  -4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
Total debt, $m
  111
  144
  179
  214
  252
  291
  331
  374
  417
  463
  510
  560
  611
  664
  719
  777
  837
  899
  964
  1,032
  1,103
  1,177
  1,254
  1,335
  1,419
  1,507
  1,599
  1,696
  1,797
  1,902
  2,013
Total liabilities, $m
  312
  345
  380
  415
  453
  492
  532
  575
  618
  664
  711
  761
  812
  865
  920
  978
  1,038
  1,100
  1,165
  1,233
  1,304
  1,378
  1,455
  1,536
  1,620
  1,708
  1,800
  1,897
  1,998
  2,103
  2,214
Total equity, $m
  139
  154
  169
  185
  202
  219
  237
  256
  275
  296
  317
  339
  361
  385
  410
  435
  462
  490
  519
  549
  580
  613
  648
  684
  721
  760
  801
  844
  889
  936
  985
Total liabilities and equity, $m
  451
  499
  549
  600
  655
  711
  769
  831
  893
  960
  1,028
  1,100
  1,173
  1,250
  1,330
  1,413
  1,500
  1,590
  1,684
  1,782
  1,884
  1,991
  2,103
  2,220
  2,341
  2,468
  2,601
  2,741
  2,887
  3,039
  3,199
Debt-to-equity ratio
  0.799
  0.940
  1.060
  1.160
  1.250
  1.330
  1.400
  1.460
  1.520
  1.570
  1.610
  1.650
  1.690
  1.720
  1.760
  1.780
  1.810
  1.840
  1.860
  1.880
  1.900
  1.920
  1.940
  1.950
  1.970
  1.980
  2.000
  2.010
  2.020
  2.030
  2.040
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
  18
  21
  24
  28
  31
  35
  39
  43
  47
  52
  57
  61
  67
  72
  77
  83
  89
  96
  102
  109
  116
  124
  132
  140
  149
  158
  168
  178
  189
  200
Depreciation, amort., depletion, $m
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
Funds from operations, $m
  32
  28
  32
  36
  41
  45
  50
  56
  61
  67
  72
  79
  85
  92
  98
  106
  113
  121
  129
  138
  147
  156
  166
  176
  187
  198
  210
  223
  236
  249
  264
Change in working capital, $m
  2
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  30
  27
  31
  36
  40
  45
  50
  55
  60
  66
  72
  78
  84
  91
  98
  105
  112
  120
  128
  137
  146
  155
  165
  175
  186
  197
  209
  221
  234
  248
  262
Maintenance CAPEX, $m
  0
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
New CAPEX, $m
  -28
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
Cash from investing activities, $m
  -28
  -22
  -24
  -26
  -27
  -29
  -31
  -32
  -35
  -37
  -38
  -41
  -43
  -45
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
  -96
  -101
  -106
Free cash flow, $m
  2
  5
  7
  10
  13
  16
  19
  22
  26
  30
  33
  37
  41
  46
  50
  55
  60
  65
  70
  75
  81
  87
  94
  100
  107
  114
  122
  130
  138
  147
  156
Issuance/(repayment) of debt, $m
  -5
  33
  34
  36
  37
  39
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  106
  111
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
  33
  34
  36
  37
  39
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  106
  111
Total cash flow (excl. dividends), $m
  8
  38
  42
  46
  50
  55
  60
  65
  70
  75
  81
  86
  92
  99
  105
  112
  120
  127
  135
  143
  152
  161
  171
  181
  191
  203
  214
  226
  239
  253
  267
Retained Cash Flow (-), $m
  -7
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
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
 
  23
  26
  30
  34
  38
  42
  46
  50
  55
  60
  65
  70
  75
  81
  87
  93
  99
  106
  113
  121
  128
  136
  145
  154
  163
  173
  184
  194
  206
  218
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
 
  22
  23
  24
  25
  25
  25
  24
  23
  22
  21
  19
  18
  16
  14
  12
  10
  9
  7
  6
  4
  3
  3
  2
  1
  1
  1
  0
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Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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  100.0
  100.0
  100.0
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  100.0

Artesian Resources Corporation is a holding company. The Company's subsidiaries offer water, wastewater and other services on the Delmarva Peninsula. The Company distributes and sells water, including water for public and private fire protection, to residential, commercial, industrial, municipal and utility customers in the states of Delaware, Maryland and Pennsylvania. The Company also provides wastewater services to customers in Delaware. In addition, the Company provides contract water and wastewater operations, and water, sewer and internal Service Line Protection Plans. As of December 31, 2016, the Company was the holding company of five regulated public utilities: Artesian Water Company, Inc., Artesian Water Pennsylvania, Inc., Artesian Water Maryland, Inc., Artesian Wastewater Management, Inc. and Artesian Wastewater Maryland, Inc., and three non-regulated subsidiaries: Artesian Utility Development, Inc., Artesian Development Corporation and Artesian Consulting Engineers, Inc.

FINANCIAL RATIOS  of  Artesian Resources Cl A (ARTNA)

Valuation Ratios
P/E Ratio 29.7
Price to Sales 4.9
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 12.9
Price to Free Cash Flow 193.2
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 10.5% 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 9.269 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 $0.4 billion.

RELATED COMPANIES Price Int.Val. Rating
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YORW York Water 36.70 12.08  str.sell
AWK American Water 87.24 31.53  str.sell
WTR Aqua America 36.03 12.89  str.sell
CTWS Connecticut Wa 63.50 31.50  sell
AWR American State 55.85 20.06  str.sell
SJW SJW Group 65.38 82.43  str.buy
GWRS Global Water R 9.63 8.04  hold
CWT California Wat 43.35 44.89  buy

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]
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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