Intrinsic value of Artesian Resources Cl A - ARTNA

Previous Close

$36.80

  Intrinsic Value

$8.76

stock screener

  Rating & Target

str. sell

-76%

Previous close

$36.80

 
Intrinsic value

$8.76

 
Up/down potential

-76%

 
Rating

str. sell

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 0001), $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 0.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  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
  84
  86
  88
  90
  93
  96
  100
  103
  107
  111
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  186
  194
  203
  213
  223
  234
  245
  257
  270
Variable operating expenses, $m
  55
  57
  58
  60
  61
  63
  66
  68
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  162
  170
  178
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
  55
  57
  58
  60
  61
  63
  66
  68
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  162
  170
  178
Operating income, $m
  29
  29
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  60
  63
  66
  69
  73
  76
  80
  84
  88
  92
EBITDA, $m
  44
  45
  46
  47
  49
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
  134
  141
Interest expense (income), $m
  7
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  25
  26
  28
  30
  32
  34
  36
  39
  41
  44
  46
Earnings before tax, $m
  22
  23
  23
  23
  24
  24
  24
  25
  25
  26
  26
  27
  28
  28
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  39
  40
  41
  43
  44
  46
Tax expense, $m
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
Net income, $m
  16
  16
  17
  17
  17
  17
  18
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33

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
Total assets, $m
  505
  517
  530
  545
  562
  580
  600
  621
  644
  669
  695
  723
  753
  785
  819
  855
  893
  933
  976
  1,020
  1,068
  1,118
  1,170
  1,226
  1,284
  1,345
  1,410
  1,478
  1,550
  1,625
Adjusted assets (=assets-cash), $m
  505
  517
  530
  545
  562
  580
  600
  621
  644
  669
  695
  723
  753
  785
  819
  855
  893
  933
  976
  1,020
  1,068
  1,118
  1,170
  1,226
  1,284
  1,345
  1,410
  1,478
  1,550
  1,625
Revenue / Adjusted assets
  0.166
  0.166
  0.166
  0.165
  0.165
  0.166
  0.167
  0.166
  0.166
  0.166
  0.165
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
Average production assets, $m
  457
  468
  480
  493
  508
  525
  542
  562
  583
  605
  629
  654
  682
  710
  741
  774
  808
  844
  883
  923
  966
  1,011
  1,059
  1,109
  1,162
  1,217
  1,276
  1,337
  1,402
  1,470
Working capital, $m
  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
  2
  2
  3
  3
Total debt, $m
  125
  133
  142
  153
  164
  177
  191
  206
  222
  240
  258
  278
  299
  322
  346
  371
  398
  426
  456
  487
  521
  556
  593
  632
  673
  716
  762
  809
  860
  913
Total liabilities, $m
  356
  364
  373
  384
  395
  408
  422
  437
  453
  471
  489
  509
  530
  553
  577
  602
  629
  657
  687
  718
  752
  787
  824
  863
  904
  947
  993
  1,041
  1,091
  1,144
Total equity, $m
  150
  153
  157
  161
  166
  172
  177
  184
  191
  198
  206
  214
  223
  232
  242
  253
  264
  276
  289
  302
  316
  331
  346
  363
  380
  398
  417
  438
  459
  481
Total liabilities and equity, $m
  506
  517
  530
  545
  561
  580
  599
  621
  644
  669
  695
  723
  753
  785
  819
  855
  893
  933
  976
  1,020
  1,068
  1,118
  1,170
  1,226
  1,284
  1,345
  1,410
  1,479
  1,550
  1,625
Debt-to-equity ratio
  0.830
  0.870
  0.910
  0.950
  0.990
  1.030
  1.080
  1.120
  1.170
  1.210
  1.250
  1.300
  1.340
  1.380
  1.430
  1.470
  1.500
  1.540
  1.580
  1.610
  1.650
  1.680
  1.710
  1.740
  1.770
  1.800
  1.820
  1.850
  1.870
  1.900
Adjusted equity ratio
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  16
  17
  17
  17
  17
  18
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
Depreciation, amort., depletion, $m
  15
  16
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
Funds from operations, $m
  32
  32
  33
  33
  34
  35
  36
  37
  38
  39
  40
  42
  43
  44
  46
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  82
Change in working capital, $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 from operations, $m
  31
  32
  33
  33
  34
  35
  36
  37
  38
  39
  40
  41
  43
  44
  46
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  72
  76
  79
  82
Maintenance CAPEX, $m
  -15
  -15
  -16
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
New CAPEX, $m
  -10
  -11
  -12
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -68
Cash from investing activities, $m
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -40
  -41
  -44
  -47
  -49
  -52
  -55
  -57
  -60
  -63
  -66
  -70
  -74
  -77
  -82
  -85
  -90
  -95
  -100
  -105
  -110
  -115
Free cash flow, $m
  6
  6
  5
  4
  3
  2
  0
  -1
  -2
  -3
  -4
  -5
  -6
  -7
  -9
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -25
  -27
  -29
  -31
  -33
Issuance/(repayment) of debt, $m
  8
  8
  9
  10
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  46
  48
  50
  53
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  8
  8
  9
  10
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  46
  48
  50
  53
Total cash flow (excl. dividends), $m
  14
  14
  14
  14
  14
  14
  14
  14
  15
  15
  15
  15
  15
  15
  15
  16
  16
  16
  16
  16
  17
  17
  17
  18
  18
  18
  19
  19
  20
  20
Retained Cash Flow (-), $m
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
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
  11
  11
  10
  10
  9
  9
  9
  8
  8
  7
  7
  7
  6
  6
  5
  5
  4
  4
  4
  3
  3
  2
  2
  1
  1
  0
  0
  -1
  -1
  -2
Discount rate, %
  6.40
  6.72
  7.06
  7.41
  7.78
  8.17
  8.58
  9.01
  9.46
  9.93
  10.42
  10.95
  11.49
  12.07
  12.67
  13.31
  13.97
  14.67
  15.40
  16.17
  16.98
  17.83
  18.72
  19.66
  20.64
  21.67
  22.76
  23.89
  25.09
  26.34
PV of cash for distribution, $m
  10
  10
  9
  7
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  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

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 25.8
Price to Sales 4.3
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 11.2
Price to Free Cash Flow 168
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 $82.235 million for the last fiscal year's total revenue generated by Artesian Resources Cl A. The default revenue input number comes from 0001 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 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 6.4%, 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 65.9%.

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 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 5.4% 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 545%.

Life of production assets of 46.8 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 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 - $146.644 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 8.36 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 $0.3 billion.

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COMPANY NEWS

▶ Artesian Resources: 3Q Earnings Snapshot   [Nov-08-18 05:05AM  Associated Press]
▶ Artesian Resources: 2Q Earnings Snapshot   [Aug-07-18 07:17PM  Associated Press]
▶ Artesian Resources: 1Q Earnings Snapshot   [May-02-18 07:05PM  Associated Press]
▶ Artesian Resources posts 4Q profit   [Mar-14-18 06:25PM  Associated Press]
▶ Best-In-Class Utilities Dividend Stocks   [Feb-10-18 07:02AM  Simply Wall St.]
▶ Artesian Resources posts 3Q profit   [Nov-06-17 05:37AM  Associated Press]
▶ 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]

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