Intrinsic value of York Water - YORW

Previous Close

$32.90

  Intrinsic Value

$12.23

stock screener

  Rating & Target

str. sell

-63%

  Value-price divergence*

+73%

Previous close

$32.90

 
Intrinsic value

$12.23

 
Up/down potential

-63%

 
Rating

str. sell

 
Value-price divergence*

+73%

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

We calculate the intrinsic value of YORW 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, %
  2.13
  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
  44
  49
  50
  51
  53
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  90
  95
  99
  103
  108
  113
  119
  124
  130
  137
  143
  150
  157
Variable operating expenses, $m
 
  26
  26
  27
  28
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  52
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
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
  25
  26
  26
  27
  28
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  52
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
Operating income, $m
  23
  23
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  62
  65
  69
  72
  75
EBITDA, $m
  29
  24
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  45
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
Interest expense (income), $m
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  31
Earnings before tax, $m
  17
  18
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
Tax expense, $m
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
Net income, $m
  12
  13
  14
  14
  14
  14
  15
  15
  16
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33

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
  320
  322
  330
  338
  347
  358
  370
  382
  396
  410
  426
  443
  461
  480
  501
  522
  545
  569
  595
  622
  651
  681
  712
  746
  781
  818
  858
  899
  942
  988
  1,036
Adjusted assets (=assets-cash), $m
  316
  322
  330
  338
  347
  358
  370
  382
  396
  410
  426
  443
  461
  480
  501
  522
  545
  569
  595
  622
  651
  681
  712
  746
  781
  818
  858
  899
  942
  988
  1,036
Revenue / Adjusted assets
  0.139
  0.152
  0.152
  0.151
  0.153
  0.151
  0.151
  0.152
  0.152
  0.151
  0.153
  0.151
  0.152
  0.152
  0.152
  0.151
  0.152
  0.153
  0.151
  0.153
  0.152
  0.151
  0.152
  0.151
  0.152
  0.152
  0.152
  0.152
  0.152
  0.152
  0.152
Average production assets, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
Working capital, $m
  5
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
Total debt, $m
  85
  89
  94
  99
  106
  112
  120
  128
  137
  147
  157
  168
  180
  192
  205
  219
  234
  250
  267
  285
  303
  323
  344
  365
  388
  413
  438
  465
  493
  523
  554
Total liabilities, $m
  206
  210
  215
  220
  227
  233
  241
  249
  258
  268
  278
  289
  301
  313
  326
  340
  355
  371
  388
  406
  424
  444
  465
  486
  509
  534
  559
  586
  614
  644
  675
Total equity, $m
  114
  112
  115
  118
  121
  125
  129
  133
  138
  143
  148
  154
  160
  167
  174
  182
  190
  198
  207
  216
  226
  237
  248
  260
  272
  285
  298
  313
  328
  344
  360
Total liabilities and equity, $m
  320
  322
  330
  338
  348
  358
  370
  382
  396
  411
  426
  443
  461
  480
  500
  522
  545
  569
  595
  622
  650
  681
  713
  746
  781
  819
  857
  899
  942
  988
  1,035
Debt-to-equity ratio
  0.746
  0.790
  0.820
  0.840
  0.870
  0.900
  0.930
  0.960
  1.000
  1.030
  1.060
  1.090
  1.120
  1.150
  1.180
  1.210
  1.240
  1.260
  1.290
  1.310
  1.340
  1.360
  1.390
  1.410
  1.430
  1.450
  1.470
  1.490
  1.500
  1.520
  1.540
Adjusted equity ratio
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  12
  13
  14
  14
  14
  14
  15
  15
  16
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
Depreciation, amort., depletion, $m
  6
  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
Funds from operations, $m
  18
  14
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
Change in working capital, $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 operations, $m
  19
  14
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
Maintenance CAPEX, $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
New CAPEX, $m
  -13
  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 investing activities, $m
  -13
  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
Free cash flow, $m
  6
  13
  14
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
Issuance/(repayment) of debt, $m
  0
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
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  
  2
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
Total cash flow (excl. dividends), $m
  9
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
Retained Cash Flow (-), $m
  -5
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
Prev. year cash balance distribution, $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
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
 
  19
  16
  16
  17
  18
  18
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  18
  14
  13
  13
  12
  11
  10
  9
  8
  8
  7
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
  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

The York Water Company impounds, purifies, and distributes drinking water. It owns and operates two wastewater collection and treatment systems; and has two reservoirs comprising Lake Williams and Lake Redman, which together hold up to approximately 2.2 billion gallons of water. The company also has a 15-mile pipeline from the Susquehanna River to Lake Redman; and owns five wells providing that supply water to its customers in Carroll Valley Borough and Cumberland Township, Adams County. It serves customers in 39 municipalities within York County and 9 municipalities within Adams County, Pennsylvania. The company serves various customers in fixtures and furniture, electrical machinery, food products, paper, ordnance units, textile products, injectable drug delivery systems, air conditioning systems, laundry detergent, barbells, and motorcycles industries. The York Water Company was founded in 1816 and is based in York, Pennsylvania.

FINANCIAL RATIOS  of  York Water (YORW)

Valuation Ratios
P/E Ratio 35.2
Price to Sales 8.8
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 22.3
Price to Free Cash Flow 70.5
Growth Rates
Sales Growth Rate 2.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -7.1%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 74.6%
Total Debt to Equity 74.6%
Interest Coverage 4
Management Effectiveness
Return On Assets 4.9%
Ret/ On Assets - 3 Yr. Avg. 5%
Return On Total Capital 6.1%
Ret/ On T. Cap. - 3 Yr. Avg. 6.1%
Return On Equity 10.8%
Return On Equity - 3 Yr. Avg. 10.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 58.3%
EBITDA Margin - 3 Yr. Avg. 58.9%
Operating Margin 47.9%
Oper. Margin - 3 Yr. Avg. 48.2%
Pre-Tax Margin 35.4%
Pre-Tax Margin - 3 Yr. Avg. 35.5%
Net Profit Margin 25%
Net Profit Margin - 3 Yr. Avg. 24.8%
Effective Tax Rate 29.4%
Eff/ Tax Rate - 3 Yr. Avg. 30%
Payout Ratio 66.7%

YORW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the YORW stock intrinsic value calculation we used $48 million for the last fiscal year's total revenue generated by York Water. The default revenue input number comes from 2016 income statement of York 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 YORW 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 6.9%, whose default value for YORW is calculated based on our internal credit rating of York 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 York 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 YORW stock the variable cost ratio is equal to 52.1%.

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 YORW 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 5.9% for York Water.

Corporate tax rate of 27% is the nominal tax rate for York 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 YORW 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 YORW are equal to 2.1%.

Life of production assets of 10 years is the average useful life of capital assets used in York 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 YORW is equal to 2.1%. 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 - $114 million for York 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 12.718 million for York 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 York Water at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Why York Water Stock Plunged Nearly 12% in May   [Jun-06-17 10:55AM  Motley Fool]
▶ ETFs with exposure to York Water Co. : May 15, 2017   [May-15-17 04:59PM  Capital Cube]
▶ ETFs with exposure to York Water Co. : May 4, 2017   [May-04-17 04:31PM  Capital Cube]
▶ York Water posts 1Q profit   [May-02-17 09:39AM  Associated Press]
▶ ETFs with exposure to York Water Co. : April 7, 2017   [Apr-07-17 05:50PM  Capital Cube]
▶ York Water posts 4Q profit   [Mar-07-17 09:42AM  Associated Press]
▶ Weekly CFO Buys Highlight   [Jan-20-17 12:43PM  GuruFocus.com]
▶ How Arbor Realty Trust, Inc. (ABR) Stacks Up Against Its Peers   [Dec-13-16 01:42AM  at Insider Monkey]
▶ How STAAR Surgical Company (STAA) Stacks Up Against Its Peers   [Dec-12-16 11:04PM  at Insider Monkey]
▶ NYSSAs 19th Annual Water Utilities Industry Conference   [Nov-30  01:31PM  Business Wire]
Stock chart of YORW Financial statements of YORW
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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