Intrinsic value of Consolidated Water - CWCO

Previous Close

$12.25

  Intrinsic Value

$3.97

stock screener

  Rating & Target

str. sell

-68%

Previous close

$12.25

 
Intrinsic value

$3.97

 
Up/down potential

-68%

 
Rating

str. sell

We calculate the intrinsic value of CWCO 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 0.2

 

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, %
  1.75
  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
  53
  59
  61
  62
  64
  66
  68
  70
  73
  75
  78
  81
  85
  88
  92
  96
  100
  105
  109
  114
  119
  125
  131
  137
  143
  150
  158
  165
  173
  181
  190
Variable operating expenses, $m
 
  52
  53
  54
  56
  58
  59
  61
  64
  66
  68
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
  142
  149
  156
  164
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
  57
  52
  53
  54
  56
  58
  59
  61
  64
  66
  68
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
  142
  149
  156
  164
Operating income, $m
  1
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
EBITDA, $m
  8
  14
  14
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
Interest expense (income), $m
  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
  1
Earnings before tax, $m
  2
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
Tax expense, $m
  -1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
Net income, $m
  4
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  39
  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
  164
  128
  130
  134
  138
  142
  146
  151
  157
  162
  169
  175
  183
  190
  198
  207
  216
  225
  235
  246
  257
  269
  282
  295
  309
  324
  339
  356
  373
  391
  410
Adjusted assets (=assets-cash), $m
  125
  128
  130
  134
  138
  142
  146
  151
  157
  162
  169
  175
  183
  190
  198
  207
  216
  225
  235
  246
  257
  269
  282
  295
  309
  324
  339
  356
  373
  391
  410
Revenue / Adjusted assets
  0.424
  0.461
  0.469
  0.463
  0.464
  0.465
  0.466
  0.464
  0.465
  0.463
  0.462
  0.463
  0.464
  0.463
  0.465
  0.464
  0.463
  0.467
  0.464
  0.463
  0.463
  0.465
  0.465
  0.464
  0.463
  0.463
  0.466
  0.463
  0.464
  0.463
  0.463
Average production assets, $m
  30
  31
  31
  32
  33
  34
  35
  36
  38
  39
  40
  42
  44
  46
  48
  50
  52
  54
  56
  59
  62
  65
  68
  71
  74
  78
  81
  85
  89
  94
  98
Working capital, $m
  54
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
Total debt, $m
  0
  0
  1
  1
  2
  2
  3
  4
  5
  5
  6
  7
  8
  9
  11
  12
  13
  14
  16
  17
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
Total liabilities, $m
  18
  18
  19
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
Total equity, $m
  146
  109
  112
  115
  118
  121
  125
  129
  134
  139
  144
  150
  156
  163
  170
  177
  185
  193
  202
  211
  220
  231
  241
  253
  265
  277
  291
  305
  319
  335
  351
Total liabilities and equity, $m
  164
  127
  131
  134
  138
  141
  146
  151
  157
  162
  168
  175
  182
  190
  199
  207
  216
  225
  236
  246
  257
  270
  282
  296
  310
  324
  340
  356
  373
  391
  410
Debt-to-equity ratio
  0.000
  0.000
  0.010
  0.010
  0.020
  0.020
  0.020
  0.030
  0.030
  0.040
  0.040
  0.050
  0.050
  0.060
  0.060
  0.070
  0.070
  0.070
  0.080
  0.080
  0.090
  0.090
  0.090
  0.100
  0.100
  0.100
  0.110
  0.110
  0.110
  0.110
  0.120
Adjusted equity ratio
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856
  0.856

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
Depreciation, amort., depletion, $m
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  9
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
Funds from operations, $m
  2
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  33
  35
  37
Change in working capital, $m
  -6
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
Cash from operations, $m
  8
  12
  12
  12
  12
  13
  13
  14
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
Maintenance CAPEX, $m
  0
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
New CAPEX, $m
  -3
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
Cash from investing activities, $m
  -3
  -7
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -14
  -14
  -15
  -15
  -16
  -16
  -18
  -19
  -19
  -20
  -21
  -23
Free cash flow, $m
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
Issuance/(repayment) of debt, $m
  -7
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
Issuance/(repurchase) of shares, $m
  1
  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  
  -7
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
Total cash flow (excl. dividends), $m
  -2
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
Retained Cash Flow (-), $m
  -1
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Prev. year cash balance distribution, $m
 
  39
  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
 
  43
  3
  3
  3
  3
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  41
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  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

Consolidated Water Co. Ltd. develops and operates seawater desalination plants (that utilize reverse osmosis technology) and water distribution systems in areas where naturally occurring supplies of potable water are scarce or non-existent. The Company operates in three segments: retail water operations, bulk water operations and services operations. The retail water operations segment produces and supplies water to end users, including residential, commercial and government customers. The bulk water operations segment produces potable water from seawater and sells this water to governments and private customers. The services operations segment provides engineering and management services, including designing and constructing desalination plants, and managing and operating plants owned by affiliated companies. Through its subsidiaries and affiliates, it provides various services to its customers in the Cayman Islands, The Bahamas, Belize, the British Virgin Islands and Indonesia.

FINANCIAL RATIOS  of  Consolidated Water (CWCO)

Valuation Ratios
P/E Ratio 45.5
Price to Sales 3.1
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 22.8
Price to Free Cash Flow 36.4
Growth Rates
Sales Growth Rate 1.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -5.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 2.7%
Ret/ On T. Cap. - 3 Yr. Avg. 4%
Return On Equity 2.7%
Return On Equity - 3 Yr. Avg. 4.2%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 15.5%
EBITDA Margin - 3 Yr. Avg. 19.9%
Operating Margin 1.7%
Oper. Margin - 3 Yr. Avg. 7.7%
Pre-Tax Margin 3.4%
Pre-Tax Margin - 3 Yr. Avg. 9.4%
Net Profit Margin 6.9%
Net Profit Margin - 3 Yr. Avg. 10%
Effective Tax Rate -50%
Eff/ Tax Rate - 3 Yr. Avg. -16.7%
Payout Ratio 100%

CWCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CWCO stock intrinsic value calculation we used $58 million for the last fiscal year's total revenue generated by Consolidated Water. The default revenue input number comes from 2016 income statement of Consolidated Water. 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 CWCO 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 4.3%, whose default value for CWCO is calculated based on our internal credit rating of Consolidated Water, 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 Consolidated Water.
    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 CWCO stock the variable cost ratio is equal to 87.9%.

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 CWCO 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 Consolidated Water.

Corporate tax rate of 27% is the nominal tax rate for Consolidated Water. 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 CWCO 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 CWCO are equal to 51.7%.

Life of production assets of 5.3 years is the average useful life of capital assets used in Consolidated Water 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 CWCO is equal to 25.9%. 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 - $146 million for Consolidated Water - 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 14.901 million for Consolidated Water 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 Consolidated Water at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ December Utilities Dividend Stocks To Look Out For   [Dec-08-17 07:02AM  Simply Wall St.]
▶ Consolidated Water Co. Ltd. to Host Earnings Call   [Nov-10-17 09:00AM  ACCESSWIRE]
▶ Consolidated Water posts 3Q profit   [Nov-09-17 06:45PM  Associated Press]
▶ Consolidated Water posts 2Q profit   [Aug-10-17 08:02PM  Associated Press]
▶ Consolidated Water Reports Second Quarter Results   [Aug-09-17 07:02PM  PR Newswire]
▶ Consolidated Water posts 1Q profit   [May-10-17 07:14PM  Associated Press]
▶ Consolidated Water posts 4Q profit   [Mar-16-17 06:32PM  Associated Press]
▶ Here Are 3 Longshots That Can Be Very Rewarding   [Dec-22-16 11:00AM  at TheStreet]
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Financial statements of CWCO
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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