Intrinsic value of Chesapeake Utilities - CPK

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$74.85

  Intrinsic Value

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  Value-price divergence*

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

We calculate the intrinsic value of CPK 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 1.2

 

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, %
  8.71
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  509
  468
  479
  491
  505
  520
  537
  555
  575
  597
  620
  644
  670
  698
  728
  759
  792
  827
  865
  904
  946
  989
  1,036
  1,084
  1,136
  1,190
  1,247
  1,307
  1,370
  1,436
  1,506
Variable operating expenses, $m
 
  410
  419
  430
  442
  456
  470
  486
  504
  522
  542
  562
  585
  609
  635
  662
  691
  722
  755
  789
  825
  863
  904
  946
  991
  1,038
  1,088
  1,140
  1,195
  1,253
  1,314
Fixed operating expenses, $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
Total operating expenses, $m
  415
  410
  419
  430
  442
  456
  470
  486
  504
  522
  542
  562
  585
  609
  635
  662
  691
  722
  755
  789
  825
  863
  904
  946
  991
  1,038
  1,088
  1,140
  1,195
  1,253
  1,314
Operating income, $m
  84
  58
  59
  61
  63
  65
  67
  69
  72
  74
  77
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138
  145
  151
  159
  166
  174
  183
  192
EBITDA, $m
  116
  68
  69
  71
  73
  75
  78
  80
  83
  86
  90
  93
  97
  101
  105
  110
  115
  120
  125
  131
  137
  143
  150
  157
  164
  172
  180
  189
  198
  208
  218
Interest expense (income), $m
  10
  12
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  28
  30
  31
  33
  36
  38
  40
  43
  45
  48
  51
  54
  57
  61
  64
Earnings before tax, $m
  73
  47
  47
  48
  49
  51
  52
  53
  55
  57
  58
  62
  64
  66
  68
  71
  73
  76
  79
  82
  85
  88
  92
  95
  99
  103
  108
  112
  117
  122
  127
Tax expense, $m
  28
  13
  13
  13
  13
  14
  14
  14
  15
  15
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
Net income, $m
  45
  34
  35
  35
  36
  37
  38
  39
  40
  41
  43
  45
  47
  48
  50
  52
  53
  55
  57
  60
  62
  64
  67
  70
  72
  75
  79
  82
  85
  89
  93

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  1,229
  1,086
  1,111
  1,140
  1,172
  1,207
  1,246
  1,289
  1,335
  1,384
  1,437
  1,494
  1,555
  1,619
  1,688
  1,761
  1,838
  1,920
  2,006
  2,097
  2,194
  2,295
  2,403
  2,516
  2,635
  2,760
  2,892
  3,031
  3,178
  3,332
  3,493
Adjusted assets (=assets-cash), $m
  1,225
  1,086
  1,111
  1,140
  1,172
  1,207
  1,246
  1,289
  1,335
  1,384
  1,437
  1,494
  1,555
  1,619
  1,688
  1,761
  1,838
  1,920
  2,006
  2,097
  2,194
  2,295
  2,403
  2,516
  2,635
  2,760
  2,892
  3,031
  3,178
  3,332
  3,493
Revenue / Adjusted assets
  0.416
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
Average production assets, $m
  62
  41
  42
  43
  44
  45
  47
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  94
  99
  104
  108
  114
  119
  125
  131
Working capital, $m
  -193
  11
  11
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
Total debt, $m
  359
  344
  361
  380
  401
  425
  451
  479
  509
  542
  577
  615
  655
  698
  744
  792
  843
  898
  955
  1,016
  1,080
  1,147
  1,218
  1,293
  1,373
  1,456
  1,544
  1,636
  1,733
  1,835
  1,943
Total liabilities, $m
  783
  721
  738
  757
  778
  802
  828
  856
  886
  919
  954
  992
  1,032
  1,075
  1,121
  1,169
  1,220
  1,275
  1,332
  1,393
  1,457
  1,524
  1,595
  1,670
  1,750
  1,833
  1,921
  2,013
  2,110
  2,212
  2,320
Total equity, $m
  446
  365
  373
  383
  394
  406
  419
  433
  448
  465
  483
  502
  522
  544
  567
  592
  618
  645
  674
  705
  737
  771
  807
  845
  885
  927
  972
  1,019
  1,068
  1,119
  1,174
Total liabilities and equity, $m
  1,229
  1,086
  1,111
  1,140
  1,172
  1,208
  1,247
  1,289
  1,334
  1,384
  1,437
  1,494
  1,554
  1,619
  1,688
  1,761
  1,838
  1,920
  2,006
  2,098
  2,194
  2,295
  2,402
  2,515
  2,635
  2,760
  2,893
  3,032
  3,178
  3,331
  3,494
Debt-to-equity ratio
  0.805
  0.940
  0.970
  0.990
  1.020
  1.050
  1.080
  1.110
  1.140
  1.170
  1.200
  1.230
  1.250
  1.280
  1.310
  1.340
  1.370
  1.390
  1.420
  1.440
  1.460
  1.490
  1.510
  1.530
  1.550
  1.570
  1.590
  1.610
  1.620
  1.640
  1.660
Adjusted equity ratio
  0.364
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  45
  34
  35
  35
  36
  37
  38
  39
  40
  41
  43
  45
  47
  48
  50
  52
  53
  55
  57
  60
  62
  64
  67
  70
  72
  75
  79
  82
  85
  89
  93
Depreciation, amort., depletion, $m
  32
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Funds from operations, $m
  86
  44
  44
  45
  46
  48
  49
  50
  52
  53
  55
  56
  58
  60
  62
  65
  67
  70
  72
  75
  78
  82
  85
  88
  92
  96
  100
  105
  109
  114
  119
Change in working capital, $m
  -17
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
Cash from operations, $m
  103
  68
  44
  45
  46
  47
  48
  50
  51
  53
  54
  56
  58
  60
  62
  64
  66
  69
  72
  74
  77
  80
  84
  87
  91
  95
  99
  103
  108
  113
  118
Maintenance CAPEX, $m
  0
  -8
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
New CAPEX, $m
  -170
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
Cash from investing activities, $m
  -170
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -20
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
Free cash flow, $m
  -67
  60
  35
  36
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  47
  49
  50
  52
  54
  56
  58
  60
  63
  65
  68
  70
  73
  76
  80
  83
  86
Issuance/(repayment) of debt, $m
  27
  15
  17
  19
  21
  24
  26
  28
  31
  33
  35
  38
  40
  43
  46
  48
  51
  54
  57
  61
  64
  68
  71
  75
  79
  83
  88
  92
  97
  102
  107
Issuance/(repurchase) of shares, $m
  58
  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  
  85
  15
  17
  19
  21
  24
  26
  28
  31
  33
  35
  38
  40
  43
  46
  48
  51
  54
  57
  61
  64
  68
  71
  75
  79
  83
  88
  92
  97
  102
  107
Total cash flow (excl. dividends), $m
  18
  75
  52
  55
  58
  61
  64
  67
  70
  74
  77
  81
  84
  88
  93
  97
  101
  106
  111
  117
  122
  128
  134
  140
  147
  154
  161
  169
  177
  185
  194
Retained Cash Flow (-), $m
  -88
  -7
  -8
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -54
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
 
  68
  43
  45
  47
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  133
  140
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  64
  38
  36
  34
  32
  30
  28
  26
  24
  21
  19
  16
  14
  12
  10
  9
  7
  6
  4
  3
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Chesapeake Utilities Corporation, a diversified energy company, engages in various energy and other businesses. The company operates in two segments, Regulated Energy and Unregulated Energy. The Regulated Energy segment distributes natural gas in Delaware, Maryland and Florida; distributes electricity in Florida; and transmits natural gas on the Delmarva Peninsula and in Florida. The Unregulated Energy segment wholesales and distributes propane; and markets and supplies natural gas. This segment also provides other unregulated energy services, such as energy-related merchandise sales; heating, ventilation and air conditioning services; and plumbing and electrical services. It also owns and leases office buildings in Delaware and Maryland. The company serves residential, commercial, industrial, and wholesale customers. Chesapeake Utilities Corporation was founded in 1859 and is headquartered in Dover, Delaware.

FINANCIAL RATIOS  of  Chesapeake Utilities (CPK)

Valuation Ratios
P/E Ratio 27.1
Price to Sales 2.4
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 11.8
Price to Free Cash Flow -18.2
Growth Rates
Sales Growth Rate 8.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 17.2%
Cap. Spend. - 3 Yr. Gr. Rate 11.9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 30.7%
Total Debt to Equity 80.5%
Interest Coverage 8
Management Effectiveness
Return On Assets 4.5%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.4%
Return On Equity 11.2%
Return On Equity - 3 Yr. Avg. 12%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 23%
EBITDA Margin - 3 Yr. Avg. 21.9%
Operating Margin 16.8%
Oper. Margin - 3 Yr. Avg. 15.4%
Pre-Tax Margin 14.6%
Pre-Tax Margin - 3 Yr. Avg. 13.8%
Net Profit Margin 9%
Net Profit Margin - 3 Yr. Avg. 8.4%
Effective Tax Rate 38.4%
Eff/ Tax Rate - 3 Yr. Avg. 39.4%
Payout Ratio 37.8%

CPK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CPK stock intrinsic value calculation we used $459 million for the last fiscal year's total revenue generated by Chesapeake Utilities. The default revenue input number comes from 2016 income statement of Chesapeake Utilities. 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 CPK stock valuation model: a) initial revenue growth rate of 2% 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%, whose default value for CPK is calculated based on our internal credit rating of Chesapeake Utilities, 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 Chesapeake Utilities.
    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 CPK stock the variable cost ratio is equal to 87.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CPK 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 3.5% for Chesapeake Utilities.

Corporate tax rate of 27% is the nominal tax rate for Chesapeake Utilities. 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 CPK 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 CPK are equal to 8.7%.

Life of production assets of 1.7 years is the average useful life of capital assets used in Chesapeake Utilities 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 CPK is equal to 2.4%. 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 - $358 million for Chesapeake Utilities - 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 16.486 million for Chesapeake Utilities 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 Chesapeake Utilities at the current share price and the inputted number of shares is $1.2 billion.


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COMPANY NEWS

▶ Chesapeake Utilities misses 1Q profit forecasts   [06:46AM  Associated Press]
▶ My Small-Cap Dividend Growers Are More Miss Than Hit So Far   [Apr-26-17 11:00AM  TheStreet.com]
▶ Chesapeake Utilities meets 4Q profit forecasts   [05:01AM  Associated Press]
Stock chart of CPK Financial statements of CPK Annual reports of CPK
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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