Intrinsic value of Connecticut Water Service - CTWS

Previous Close

$52.71

  Intrinsic Value

$37.96

stock screener

  Rating & Target

sell

-28%

Previous close

$52.71

 
Intrinsic value

$37.96

 
Up/down potential

-28%

 
Rating

sell

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

We calculate the intrinsic value of CTWS 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  3.13
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
Revenue, $m
  99
  109
  120
  131
  143
  155
  167
  180
  194
  208
  223
  238
  254
  270
  288
  305
  324
  343
  364
  385
  407
  430
  454
  479
  505
  532
  561
  591
  622
  655
  689
Variable operating expenses, $m
 
  78
  85
  93
  101
  109
  118
  127
  136
  146
  156
  163
  174
  186
  197
  210
  222
  236
  250
  264
  279
  295
  311
  329
  347
  365
  385
  406
  427
  450
  473
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
  67
  78
  85
  93
  101
  109
  118
  127
  136
  146
  156
  163
  174
  186
  197
  210
  222
  236
  250
  264
  279
  295
  311
  329
  347
  365
  385
  406
  427
  450
  473
Operating income, $m
  32
  31
  35
  38
  42
  45
  49
  54
  58
  62
  67
  75
  80
  85
  90
  96
  102
  108
  114
  121
  127
  135
  142
  150
  158
  167
  176
  185
  195
  205
  216
EBITDA, $m
  45
  41
  44
  49
  53
  57
  62
  67
  72
  77
  83
  88
  94
  100
  107
  113
  120
  127
  135
  143
  151
  159
  168
  178
  187
  197
  208
  219
  231
  243
  256
Interest expense (income), $m
  7
  8
  10
  12
  14
  17
  19
  21
  24
  27
  29
  32
  35
  38
  41
  45
  48
  52
  56
  59
  64
  68
  72
  77
  82
  87
  92
  98
  103
  109
  116
Earnings before tax, $m
  26
  23
  24
  26
  27
  29
  30
  32
  34
  36
  37
  42
  44
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
  87
  91
  96
  100
Tax expense, $m
  3
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
Net income, $m
  23
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2
  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
  785
  867
  951
  1,040
  1,132
  1,228
  1,328
  1,431
  1,539
  1,651
  1,768
  1,889
  2,015
  2,146
  2,282
  2,424
  2,571
  2,725
  2,885
  3,053
  3,227
  3,409
  3,599
  3,798
  4,006
  4,223
  4,450
  4,688
  4,937
  5,198
  5,470
Adjusted assets (=assets-cash), $m
  783
  867
  951
  1,040
  1,132
  1,228
  1,328
  1,431
  1,539
  1,651
  1,768
  1,889
  2,015
  2,146
  2,282
  2,424
  2,571
  2,725
  2,885
  3,053
  3,227
  3,409
  3,599
  3,798
  4,006
  4,223
  4,450
  4,688
  4,937
  5,198
  5,470
Revenue / Adjusted assets
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
  0.126
Average production assets, $m
  29
  31
  35
  38
  41
  45
  48
  52
  56
  60
  64
  69
  73
  78
  83
  88
  93
  99
  105
  111
  117
  124
  131
  138
  145
  153
  161
  170
  179
  189
  199
Working capital, $m
  -26
  11
  12
  13
  14
  16
  17
  18
  20
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  70
Total debt, $m
  235
  291
  350
  412
  476
  543
  612
  685
  760
  838
  919
  1,004
  1,091
  1,183
  1,277
  1,376
  1,479
  1,586
  1,698
  1,815
  1,936
  2,063
  2,196
  2,334
  2,479
  2,631
  2,789
  2,955
  3,128
  3,310
  3,500
Total liabilities, $m
  548
  604
  663
  725
  789
  856
  925
  998
  1,073
  1,151
  1,232
  1,317
  1,404
  1,496
  1,590
  1,689
  1,792
  1,899
  2,011
  2,128
  2,249
  2,376
  2,509
  2,647
  2,792
  2,944
  3,102
  3,268
  3,441
  3,623
  3,813
Total equity, $m
  237
  263
  288
  315
  343
  372
  402
  434
  466
  500
  536
  572
  610
  650
  691
  734
  779
  826
  874
  925
  978
  1,033
  1,091
  1,151
  1,214
  1,280
  1,348
  1,421
  1,496
  1,575
  1,658
Total liabilities and equity, $m
  785
  867
  951
  1,040
  1,132
  1,228
  1,327
  1,432
  1,539
  1,651
  1,768
  1,889
  2,014
  2,146
  2,281
  2,423
  2,571
  2,725
  2,885
  3,053
  3,227
  3,409
  3,600
  3,798
  4,006
  4,224
  4,450
  4,689
  4,937
  5,198
  5,471
Debt-to-equity ratio
  0.992
  1.110
  1.210
  1.310
  1.390
  1.460
  1.520
  1.580
  1.630
  1.670
  1.720
  1.750
  1.790
  1.820
  1.850
  1.870
  1.900
  1.920
  1.940
  1.960
  1.980
  2.000
  2.010
  2.030
  2.040
  2.060
  2.070
  2.080
  2.090
  2.100
  2.110
Adjusted equity ratio
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
Depreciation, amort., depletion, $m
  13
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
Funds from operations, $m
  28
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
  93
  98
  103
  108
  113
Change in working capital, $m
  -5
  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
  3
  3
Cash from operations, $m
  33
  25
  27
  28
  30
  32
  34
  35
  37
  40
  42
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  71
  75
  78
  82
  86
  90
  95
  99
  104
  109
Maintenance CAPEX, $m
  0
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
New CAPEX, $m
  -67
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
Cash from investing activities, $m
  -66
  -9
  -9
  -10
  -11
  -11
  -13
  -14
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -32
  -33
  -36
  -37
  -39
  -41
  -43
  -45
  -48
Free cash flow, $m
  -33
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  56
  59
  62
Issuance/(repayment) of debt, $m
  44
  58
  59
  62
  64
  67
  70
  72
  75
  78
  81
  84
  88
  91
  95
  99
  103
  107
  112
  117
  122
  127
  133
  139
  145
  151
  158
  166
  173
  182
  190
Issuance/(repurchase) of shares, $m
  2
  9
  8
  8
  8
  8
  8
  8
  8
  8
  8
  6
  6
  6
  6
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  10
Cash from financing (excl. dividends), $m  
  46
  67
  67
  70
  72
  75
  78
  80
  83
  86
  89
  90
  94
  97
  101
  105
  109
  113
  118
  123
  128
  133
  140
  146
  152
  158
  166
  174
  182
  191
  200
Total cash flow (excl. dividends), $m
  14
  83
  84
  88
  91
  95
  99
  102
  106
  110
  115
  116
  121
  125
  131
  136
  141
  147
  154
  160
  167
  175
  182
  190
  199
  208
  218
  228
  238
  250
  261
Retained Cash Flow (-), $m
  -12
  -26
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -83
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
 
  58
  58
  61
  63
  66
  68
  71
  74
  76
  79
  79
  82
  86
  89
  93
  97
  101
  105
  110
  114
  119
  125
  130
  136
  142
  149
  156
  163
  171
  179
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  53
  50
  47
  44
  41
  38
  34
  31
  27
  24
  20
  17
  14
  12
  10
  8
  6
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.7
  97.6
  96.6
  95.7
  94.9
  94.1
  93.5
  92.8
  92.2
  91.7
  91.4
  91.0
  90.7
  90.4
  90.1
  89.9
  89.6
  89.4
  89.2
  88.9
  88.7
  88.5
  88.3
  88.1
  87.9
  87.7
  87.5
  87.3
  87.1
  86.9

Connecticut Water Service, Inc. is a non-operating holding company. The Company's income is derived from the earnings of its subsidiary companies, including The Connecticut Water Company (Connecticut Water), The Maine Water Company (Maine Water), New England Water Utility Services, Inc. (NEWUS),The Avon Water Company (AWC) and Chester Realty Company (Chester Realty). It operates through three segments: Water Operations, Real Estate Transactions, and Services and Rentals. The Water Activities segment consists of its regulated water activities to supply public drinking water to customers. The Real Estate Transactions segment involves the sale or donation for income tax benefits of its real estate holdings. Services and Rentals segment provides contracted services to water and wastewater utilities and other clients, and also leases certain of the Company's properties to third parties through unregulated companies in the State of Connecticut and through Maine Water in the State of Maine.

FINANCIAL RATIOS  of  Connecticut Water Service (CTWS)

Valuation Ratios
P/E Ratio 25.8
Price to Sales 6
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 18
Price to Free Cash Flow -17.4
Growth Rates
Sales Growth Rate 3.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 39.6%
Cap. Spend. - 3 Yr. Gr. Rate 15.2%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 83.1%
Total Debt to Equity 99.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 5.2%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. 10.3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 46.5%
EBITDA Margin - 3 Yr. Avg. 45.7%
Operating Margin 32.3%
Oper. Margin - 3 Yr. Avg. 30.8%
Pre-Tax Margin 26.3%
Pre-Tax Margin - 3 Yr. Avg. 25.3%
Net Profit Margin 23.2%
Net Profit Margin - 3 Yr. Avg. 23.2%
Effective Tax Rate 11.5%
Eff/ Tax Rate - 3 Yr. Avg. 7.7%
Payout Ratio 56.5%

CTWS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CTWS stock intrinsic value calculation we used $99 million for the last fiscal year's total revenue generated by Connecticut Water Service. The default revenue input number comes from 2016 income statement of Connecticut Water Service. 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 CTWS stock valuation model: a) initial revenue growth rate of 10.3% 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 8.2%, whose default value for CTWS is calculated based on our internal credit rating of Connecticut Water Service, 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 Connecticut Water Service.
    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 CTWS stock the variable cost ratio is equal to 71.7%.

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 CTWS 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 Connecticut Water Service.

Corporate tax rate of 27% is the nominal tax rate for Connecticut Water Service. 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 CTWS 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 CTWS are equal to 28.8%.

Life of production assets of 4.5 years is the average useful life of capital assets used in Connecticut Water Service 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 CTWS is equal to 10.1%. 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 - $237 million for Connecticut Water Service - 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 12.234 million for Connecticut Water Service 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 Connecticut Water Service at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Value-Adding Utilities Dividend Stocks To Buy Now   [Feb-09-18 07:02AM  Simply Wall St.]
▶ New Strong Sell Stocks for January 22nd   [Jan-22-18 09:49AM  Zacks]
▶ Connecticut Water Service posts 3Q profit   [02:41PM  Associated Press]
▶ Connecticut Water Service, Inc. Declares Dividends   [Aug-14-17 11:15AM  GlobeNewswire]
▶ Connecticut Water Service posts 2Q profit   [Aug-08-17 11:55PM  Associated Press]
▶ Connecticut Water Service posts 1Q profit   [May-08-17 03:01PM  Associated Press]
▶ Maine Water president retires, Knowlton named replacement   [Mar-30-17 11:00AM  GlobeNewswire]
▶ Connecticut Water Service posts 4Q profit   [Mar-13-17 03:20PM  Associated Press]
Financial statements of CTWS
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