Intrinsic value of Connecticut Water Service, Inc. - CTWS

Previous Close

$68.20

  Intrinsic Value

$46.60

stock screener

  Rating & Target

sell

-32%

Previous close

$68.20

 
Intrinsic value

$46.60

 
Up/down potential

-32%

 
Rating

sell

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

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 0.8

 

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, %
  3.00
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
Revenue, $m
  121
  124
  129
  133
  138
  143
  149
  155
  161
  168
  175
  183
  191
  200
  209
  218
  229
  239
  251
  262
  275
  288
  302
  316
  332
  348
  365
  383
  401
  421
Variable operating expenses, $m
  82
  83
  83
  83
  83
  84
  84
  85
  85
  86
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
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
  82
  83
  83
  83
  83
  84
  84
  85
  85
  86
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
Operating income, $m
  38
  42
  46
  50
  55
  59
  65
  70
  76
  83
  163
  171
  178
  186
  195
  204
  213
  223
  233
  244
  256
  268
  281
  295
  309
  324
  340
  356
  374
  392
EBITDA, $m
  138
  142
  147
  153
  158
  164
  171
  178
  185
  193
  201
  210
  219
  229
  239
  250
  262
  274
  287
  301
  315
  330
  346
  362
  380
  398
  418
  438
  460
  482
Interest expense (income), $m
  7
  17
  18
  19
  21
  22
  23
  25
  27
  29
  30
  33
  35
  37
  40
  42
  45
  48
  51
  54
  58
  61
  65
  69
  73
  78
  82
  87
  92
  98
  103
Earnings before tax, $m
  21
  24
  26
  29
  33
  36
  40
  44
  48
  52
  131
  136
  141
  147
  152
  159
  165
  172
  179
  187
  195
  203
  212
  222
  231
  242
  253
  264
  276
  289
Tax expense, $m
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  35
  37
  38
  40
  41
  43
  45
  46
  48
  50
  53
  55
  57
  60
  62
  65
  68
  71
  75
  78
Net income, $m
  15
  17
  19
  22
  24
  26
  29
  32
  35
  38
  96
  99
  103
  107
  111
  116
  121
  126
  131
  136
  142
  148
  155
  162
  169
  177
  184
  193
  202
  211

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
  980
  1,011
  1,045
  1,082
  1,122
  1,165
  1,211
  1,260
  1,312
  1,367
  1,426
  1,489
  1,555
  1,625
  1,698
  1,776
  1,859
  1,945
  2,037
  2,133
  2,234
  2,341
  2,454
  2,572
  2,697
  2,828
  2,965
  3,110
  3,262
  3,422
Adjusted assets (=assets-cash), $m
  980
  1,011
  1,045
  1,082
  1,122
  1,165
  1,211
  1,260
  1,312
  1,367
  1,426
  1,489
  1,555
  1,625
  1,698
  1,776
  1,859
  1,945
  2,037
  2,133
  2,234
  2,341
  2,454
  2,572
  2,697
  2,828
  2,965
  3,110
  3,262
  3,422
Revenue / Adjusted assets
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
  0.123
Average production assets, $m
  775
  799
  826
  856
  887
  921
  957
  996
  1,037
  1,081
  1,128
  1,177
  1,229
  1,284
  1,343
  1,404
  1,469
  1,538
  1,610
  1,686
  1,767
  1,851
  1,940
  2,034
  2,132
  2,236
  2,344
  2,459
  2,579
  2,706
Working capital, $m
  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
  47
  49
  52
  54
Total debt, $m
  335
  357
  380
  406
  434
  463
  495
  529
  565
  603
  644
  687
  732
  781
  832
  885
  942
  1,002
  1,065
  1,132
  1,202
  1,276
  1,354
  1,435
  1,521
  1,612
  1,707
  1,807
  1,912
  2,023
Total liabilities, $m
  677
  699
  722
  748
  775
  805
  837
  871
  907
  945
  986
  1,029
  1,074
  1,123
  1,174
  1,227
  1,284
  1,344
  1,407
  1,474
  1,544
  1,618
  1,696
  1,777
  1,863
  1,954
  2,049
  2,149
  2,254
  2,365
Total equity, $m
  303
  312
  323
  334
  347
  360
  374
  389
  405
  423
  441
  460
  480
  502
  525
  549
  574
  601
  629
  659
  690
  723
  758
  795
  833
  874
  916
  961
  1,008
  1,058
Total liabilities and equity, $m
  980
  1,011
  1,045
  1,082
  1,122
  1,165
  1,211
  1,260
  1,312
  1,368
  1,427
  1,489
  1,554
  1,625
  1,699
  1,776
  1,858
  1,945
  2,036
  2,133
  2,234
  2,341
  2,454
  2,572
  2,696
  2,828
  2,965
  3,110
  3,262
  3,423
Debt-to-equity ratio
  1.110
  1.140
  1.180
  1.210
  1.250
  1.290
  1.320
  1.360
  1.390
  1.430
  1.460
  1.490
  1.520
  1.560
  1.580
  1.610
  1.640
  1.670
  1.690
  1.720
  1.740
  1.760
  1.790
  1.810
  1.830
  1.840
  1.860
  1.880
  1.900
  1.910
Adjusted equity ratio
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309
  0.309

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  17
  19
  22
  24
  26
  29
  32
  35
  38
  96
  99
  103
  107
  111
  116
  121
  126
  131
  136
  142
  148
  155
  162
  169
  177
  184
  193
  202
  211
Depreciation, amort., depletion, $m
  100
  101
  102
  103
  104
  105
  106
  107
  109
  110
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
  86
  90
Funds from operations, $m
  115
  118
  121
  124
  127
  131
  135
  139
  143
  148
  133
  138
  144
  150
  156
  163
  170
  177
  185
  193
  201
  210
  220
  230
  240
  251
  263
  275
  288
  301
Change in working capital, $m
  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
  2
  3
Cash from operations, $m
  115
  117
  120
  123
  127
  130
  134
  138
  143
  147
  132
  137
  143
  149
  155
  161
  168
  175
  183
  191
  200
  208
  218
  228
  238
  249
  260
  272
  285
  299
Maintenance CAPEX, $m
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
New CAPEX, $m
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -39
  -41
  -44
  -47
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -89
  -94
  -98
  -104
  -109
  -114
  -120
  -127
Cash from investing activities, $m
  -48
  -51
  -54
  -57
  -61
  -64
  -67
  -71
  -74
  -79
  -83
  -87
  -91
  -96
  -101
  -107
  -112
  -118
  -123
  -130
  -136
  -143
  -151
  -159
  -166
  -175
  -184
  -192
  -202
  -213
Free cash flow, $m
  67
  67
  67
  67
  67
  67
  67
  68
  68
  69
  50
  50
  51
  53
  54
  55
  56
  58
  60
  61
  63
  65
  67
  69
  72
  74
  77
  80
  83
  86
Issuance/(repayment) of debt, $m
  19
  22
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  90
  95
  100
  105
  111
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  
  19
  22
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  90
  95
  100
  105
  111
Total cash flow (excl. dividends), $m
  87
  89
  90
  92
  94
  97
  99
  101
  104
  107
  90
  94
  97
  101
  105
  109
  113
  118
  123
  128
  133
  139
  145
  151
  158
  165
  172
  180
  188
  197
Retained Cash Flow (-), $m
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -43
  -45
  -47
  -49
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
  78
  79
  80
  81
  82
  83
  85
  86
  88
  90
  72
  74
  77
  79
  82
  85
  88
  91
  94
  98
  102
  106
  110
  115
  119
  124
  130
  135
  141
  147
Discount rate, %
  8.60
  9.03
  9.48
  9.96
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.42
  27.74
  29.12
  30.58
  32.11
  33.71
  35.40
PV of cash for distribution, $m
  72
  66
  61
  55
  50
  45
  39
  35
  30
  26
  17
  14
  12
  10
  8
  6
  5
  4
  3
  2
  1
  1
  1
  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
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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, Inc. (CTWS)

Valuation Ratios
P/E Ratio 33.4
Price to Sales 7.8
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 23.3
Price to Free Cash Flow -22.6
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 $117 million for the last fiscal year's total revenue generated by Connecticut Water Service, Inc.. The default revenue input number comes from 0001 income statement of Connecticut Water Service, Inc.. 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 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 8.6%, whose default value for CTWS is calculated based on our internal credit rating of Connecticut Water Service, Inc., 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, Inc..
    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 70.1%.

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 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 5.4% for Connecticut Water Service, Inc..

Corporate tax rate of 27% is the nominal tax rate for Connecticut Water Service, Inc.. 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 642.8%.

Life of production assets of 37.6 years is the average useful life of capital assets used in Connecticut Water Service, Inc. 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 12.9%. 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 - $294.136 million for Connecticut Water Service, Inc. - 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 12.060 million for Connecticut Water Service, Inc. 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, Inc. at the current share price and the inputted number of shares is $0.8 billion.

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