Intrinsic value of Chesapeake Utilities - CPK

Previous Close

$82.70

  Intrinsic Value

$133.89

stock screener

  Rating & Target

str. buy

+62%

Previous close

$82.70

 
Intrinsic value

$133.89

 
Up/down potential

+62%

 
Rating

str. buy

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 1.4

 

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, %
  8.71
  22.50
  20.75
  19.18
  17.76
  16.48
  15.33
  14.30
  13.37
  12.53
  11.78
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
Revenue, $m
  509
  611
  738
  880
  1,036
  1,207
  1,392
  1,591
  1,803
  2,029
  2,268
  2,520
  2,785
  3,061
  3,351
  3,652
  3,967
  4,293
  4,633
  4,987
  5,354
  5,736
  6,132
  6,545
  6,973
  7,419
  7,883
  8,367
  8,870
  9,395
  9,942
Variable operating expenses, $m
 
  507
  612
  729
  858
  999
  1,152
  1,317
  1,493
  1,680
  1,877
  2,084
  2,303
  2,532
  2,771
  3,020
  3,280
  3,551
  3,832
  4,124
  4,428
  4,743
  5,071
  5,412
  5,767
  6,136
  6,520
  6,919
  7,336
  7,770
  8,222
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
  507
  612
  729
  858
  999
  1,152
  1,317
  1,493
  1,680
  1,877
  2,084
  2,303
  2,532
  2,771
  3,020
  3,280
  3,551
  3,832
  4,124
  4,428
  4,743
  5,071
  5,412
  5,767
  6,136
  6,520
  6,919
  7,336
  7,770
  8,222
Operating income, $m
  84
  104
  126
  151
  178
  207
  239
  274
  310
  350
  391
  436
  482
  530
  580
  632
  686
  743
  802
  863
  926
  992
  1,061
  1,132
  1,206
  1,284
  1,364
  1,448
  1,535
  1,625
  1,720
EBITDA, $m
  116
  121
  146
  174
  205
  238
  275
  314
  356
  401
  448
  498
  550
  605
  662
  722
  784
  848
  916
  985
  1,058
  1,133
  1,212
  1,293
  1,378
  1,466
  1,558
  1,653
  1,753
  1,857
  1,965
Interest expense (income), $m
  10
  12
  19
  26
  33
  42
  51
  61
  72
  84
  96
  109
  123
  137
  153
  168
  185
  202
  220
  239
  258
  278
  299
  321
  343
  367
  391
  416
  443
  470
  499
Earnings before tax, $m
  73
  92
  108
  125
  144
  165
  188
  212
  238
  266
  295
  327
  359
  392
  427
  463
  501
  541
  582
  624
  668
  714
  762
  812
  863
  917
  973
  1,031
  1,092
  1,155
  1,221
Tax expense, $m
  28
  25
  29
  34
  39
  45
  51
  57
  64
  72
  80
  88
  97
  106
  115
  125
  135
  146
  157
  169
  180
  193
  206
  219
  233
  248
  263
  278
  295
  312
  330
Net income, $m
  45
  67
  79
  91
  105
  121
  137
  155
  174
  194
  215
  239
  262
  286
  312
  338
  366
  395
  425
  456
  488
  521
  556
  593
  630
  669
  710
  753
  797
  843
  891

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
  1,502
  1,814
  2,161
  2,545
  2,965
  3,419
  3,908
  4,431
  4,986
  5,573
  6,192
  6,842
  7,522
  8,233
  8,974
  9,746
  10,549
  11,384
  12,253
  13,155
  14,093
  15,067
  16,080
  17,133
  18,229
  19,370
  20,557
  21,794
  23,084
  24,428
Adjusted assets (=assets-cash), $m
  1,225
  1,502
  1,814
  2,161
  2,545
  2,965
  3,419
  3,908
  4,431
  4,986
  5,573
  6,192
  6,842
  7,522
  8,233
  8,974
  9,746
  10,549
  11,384
  12,253
  13,155
  14,093
  15,067
  16,080
  17,133
  18,229
  19,370
  20,557
  21,794
  23,084
  24,428
Revenue / Adjusted assets
  0.416
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
Average production assets, $m
  62
  75
  91
  108
  127
  148
  171
  196
  222
  250
  279
  310
  342
  377
  412
  449
  488
  528
  570
  613
  659
  705
  754
  805
  858
  913
  970
  1,029
  1,091
  1,156
  1,223
Working capital, $m
  -193
  31
  37
  44
  52
  60
  70
  80
  90
  101
  113
  126
  139
  153
  168
  183
  198
  215
  232
  249
  268
  287
  307
  327
  349
  371
  394
  418
  444
  470
  497
Total debt, $m
  359
  531
  729
  951
  1,195
  1,461
  1,751
  2,062
  2,394
  2,747
  3,121
  3,514
  3,927
  4,360
  4,812
  5,283
  5,774
  6,285
  6,816
  7,369
  7,943
  8,539
  9,159
  9,803
  10,473
  11,170
  11,895
  12,650
  13,437
  14,257
  15,112
Total liabilities, $m
  783
  955
  1,153
  1,375
  1,619
  1,885
  2,175
  2,486
  2,818
  3,171
  3,545
  3,938
  4,351
  4,784
  5,236
  5,707
  6,198
  6,709
  7,240
  7,793
  8,367
  8,963
  9,583
  10,227
  10,897
  11,594
  12,319
  13,074
  13,861
  14,681
  15,536
Total equity, $m
  446
  547
  660
  787
  926
  1,079
  1,245
  1,423
  1,613
  1,815
  2,029
  2,254
  2,490
  2,738
  2,997
  3,266
  3,547
  3,840
  4,144
  4,460
  4,788
  5,130
  5,484
  5,853
  6,237
  6,635
  7,051
  7,483
  7,933
  8,402
  8,892
Total liabilities and equity, $m
  1,229
  1,502
  1,813
  2,162
  2,545
  2,964
  3,420
  3,909
  4,431
  4,986
  5,574
  6,192
  6,841
  7,522
  8,233
  8,973
  9,745
  10,549
  11,384
  12,253
  13,155
  14,093
  15,067
  16,080
  17,134
  18,229
  19,370
  20,557
  21,794
  23,083
  24,428
Debt-to-equity ratio
  0.805
  0.970
  1.100
  1.210
  1.290
  1.350
  1.410
  1.450
  1.480
  1.510
  1.540
  1.560
  1.580
  1.590
  1.610
  1.620
  1.630
  1.640
  1.640
  1.650
  1.660
  1.660
  1.670
  1.670
  1.680
  1.680
  1.690
  1.690
  1.690
  1.700
  1.700
Adjusted equity ratio
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364
  0.364

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  45
  67
  79
  91
  105
  121
  137
  155
  174
  194
  215
  239
  262
  286
  312
  338
  366
  395
  425
  456
  488
  521
  556
  593
  630
  669
  710
  753
  797
  843
  891
Depreciation, amort., depletion, $m
  32
  17
  20
  23
  27
  31
  36
  41
  46
  51
  57
  62
  68
  75
  82
  90
  98
  106
  114
  123
  132
  141
  151
  161
  172
  183
  194
  206
  218
  231
  245
Funds from operations, $m
  86
  84
  98
  115
  132
  152
  173
  196
  220
  245
  272
  301
  330
  362
  394
  428
  464
  500
  539
  578
  620
  663
  707
  754
  802
  852
  904
  959
  1,015
  1,074
  1,136
Change in working capital, $m
  -17
  6
  6
  7
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
Cash from operations, $m
  103
  78
  92
  107
  125
  143
  164
  186
  209
  234
  261
  288
  317
  348
  380
  413
  448
  484
  522
  561
  601
  643
  687
  733
  780
  830
  881
  934
  990
  1,048
  1,109
Maintenance CAPEX, $m
  0
  -12
  -15
  -18
  -22
  -25
  -30
  -34
  -39
  -44
  -50
  -56
  -62
  -68
  -75
  -82
  -90
  -98
  -106
  -114
  -123
  -132
  -141
  -151
  -161
  -172
  -183
  -194
  -206
  -218
  -231
New CAPEX, $m
  -170
  -14
  -16
  -17
  -19
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -65
  -67
Cash from investing activities, $m
  -170
  -26
  -31
  -35
  -41
  -46
  -53
  -58
  -65
  -72
  -79
  -87
  -95
  -102
  -111
  -119
  -129
  -138
  -148
  -157
  -168
  -179
  -190
  -202
  -214
  -227
  -240
  -253
  -268
  -283
  -298
Free cash flow, $m
  -67
  52
  61
  72
  84
  97
  111
  127
  144
  162
  181
  201
  223
  245
  269
  294
  319
  346
  374
  403
  433
  465
  497
  531
  567
  603
  641
  681
  722
  765
  810
Issuance/(repayment) of debt, $m
  27
  176
  198
  221
  244
  267
  289
  311
  332
  353
  374
  394
  413
  433
  452
  471
  491
  511
  531
  552
  574
  596
  620
  644
  670
  697
  725
  755
  787
  820
  855
Issuance/(repurchase) of shares, $m
  58
  34
  35
  35
  34
  32
  28
  23
  16
  8
  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
  210
  233
  256
  278
  299
  317
  334
  348
  361
  374
  394
  413
  433
  452
  471
  491
  511
  531
  552
  574
  596
  620
  644
  670
  697
  725
  755
  787
  820
  855
Total cash flow (excl. dividends), $m
  18
  262
  294
  328
  362
  396
  429
  461
  492
  523
  555
  595
  636
  678
  721
  765
  810
  857
  905
  955
  1,007
  1,061
  1,117
  1,176
  1,237
  1,300
  1,367
  1,436
  1,509
  1,585
  1,665
Retained Cash Flow (-), $m
  -88
  -101
  -113
  -127
  -140
  -153
  -165
  -178
  -190
  -202
  -214
  -225
  -236
  -248
  -259
  -270
  -281
  -292
  -304
  -316
  -328
  -341
  -355
  -369
  -383
  -399
  -415
  -432
  -450
  -469
  -489
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
 
  161
  181
  202
  222
  243
  263
  283
  302
  321
  341
  369
  399
  430
  462
  495
  529
  565
  601
  639
  679
  720
  763
  807
  853
  901
  952
  1,004
  1,059
  1,116
  1,176
Discount rate, %
 
  6.50
  6.83
  7.17
  7.52
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
PV of cash for distribution, $m
 
  151
  159
  164
  166
  166
  163
  158
  150
  141
  130
  122
  113
  102
  92
  81
  70
  59
  49
  40
  32
  25
  20
  15
  11
  8
  5
  4
  2
  2
  1
Current shareholders' claim on cash, %
  100
  97.6
  95.6
  93.9
  92.6
  91.6
  90.8
  90.2
  89.9
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7
  89.7

Chesapeake Utilities Corporation (Chesapeake) is an energy company. The Company operates through two segments: Regulated Energy and Unregulated Energy. The Company provides natural gas distribution and transmission; natural gas supply, gathering, processing and marketing; electric distribution and generation; propane distribution; propane and crude oil wholesale marketing; steam generation, and other energy-related services. The Regulated Energy segment includes the Company's natural gas distribution, natural gas transmission and electric distribution operations. The Unregulated Energy segment includes its propane distribution, propane and crude oil wholesale marketing, natural gas marketing and unregulated natural gas supply, gathering and processing, electricity and steam generation and other unregulated energy-related services to customers.

FINANCIAL RATIOS  of  Chesapeake Utilities (CPK)

Valuation Ratios
P/E Ratio 30
Price to Sales 2.7
Price to Book 3
Price to Tangible Book
Price to Cash Flow 13.1
Price to Free Cash Flow -20.1
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 $499 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 22.5% 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 6.5%, 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 83%.

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 12.3%.

Life of production assets of 2.4 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 5%. 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 - $446 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 16.389 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 $1.4 billion.

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COMPANY NEWS

▶ Chesapeake Utilities beats 3Q profit forecasts   [Nov-09-17 06:51AM  Associated Press]
▶ Chesapeake Utilities misses 2Q profit forecasts   [01:55AM  Associated Press]
▶ 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]
Financial statements 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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