Intrinsic value of Connecticut Water Service - CTWS

Previous Close

$69.35

  Intrinsic Value

$4.69

stock screener

  Rating & Target

str. sell

-93%

Previous close

$69.35

 
Intrinsic value

$4.69

 
Up/down potential

-93%

 
Rating

str. 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, %
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
Revenue, $m
  115
  123
  131
  140
  149
  158
  168
  178
  189
  200
  211
  223
  236
  249
  263
  277
  292
  308
  324
  341
  359
  378
  398
  418
  440
  463
  486
  511
  537
  565
Variable operating expenses, $m
  79
  84
  89
  95
  100
  106
  112
  119
  125
  132
  133
  140
  148
  157
  165
  174
  184
  194
  204
  215
  226
  238
  250
  263
  277
  291
  306
  322
  338
  356
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
  79
  84
  89
  95
  100
  106
  112
  119
  125
  132
  133
  140
  148
  157
  165
  174
  184
  194
  204
  215
  226
  238
  250
  263
  277
  291
  306
  322
  338
  356
Operating income, $m
  36
  39
  42
  45
  48
  52
  56
  59
  63
  67
  78
  83
  87
  92
  97
  103
  108
  114
  120
  126
  133
  140
  147
  155
  163
  171
  180
  189
  199
  209
EBITDA, $m
  67
  71
  76
  81
  86
  92
  97
  103
  110
  116
  123
  130
  137
  144
  152
  161
  169
  179
  188
  198
  208
  219
  231
  243
  255
  269
  282
  297
  312
  328
Interest expense (income), $m
  7
  15
  17
  20
  22
  25
  28
  31
  34
  37
  40
  43
  47
  51
  54
  58
  63
  67
  72
  76
  81
  87
  92
  98
  104
  110
  117
  124
  131
  139
  147
Earnings before tax, $m
  21
  21
  22
  23
  23
  24
  25
  26
  26
  27
  35
  36
  37
  38
  39
  40
  41
  42
  44
  45
  47
  48
  50
  51
  53
  55
  57
  59
  61
  63
Tax expense, $m
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  9
  10
  10
  10
  11
  11
  11
  11
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
Net income, $m
  15
  16
  16
  17
  17
  18
  18
  19
  19
  20
  25
  26
  27
  28
  28
  29
  30
  31
  32
  33
  34
  35
  36
  37
  39
  40
  41
  43
  44
  46

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
  964
  1,032
  1,102
  1,174
  1,250
  1,329
  1,411
  1,496
  1,585
  1,678
  1,775
  1,876
  1,981
  2,091
  2,206
  2,327
  2,453
  2,584
  2,722
  2,866
  3,017
  3,175
  3,341
  3,514
  3,696
  3,887
  4,087
  4,296
  4,516
  4,747
Adjusted assets (=assets-cash), $m
  964
  1,032
  1,102
  1,174
  1,250
  1,329
  1,411
  1,496
  1,585
  1,678
  1,775
  1,876
  1,981
  2,091
  2,206
  2,327
  2,453
  2,584
  2,722
  2,866
  3,017
  3,175
  3,341
  3,514
  3,696
  3,887
  4,087
  4,296
  4,516
  4,747
Revenue / Adjusted assets
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
  0.119
Average production assets, $m
  723
  773
  826
  880
  937
  996
  1,057
  1,121
  1,188
  1,258
  1,330
  1,406
  1,485
  1,567
  1,654
  1,744
  1,838
  1,937
  2,040
  2,148
  2,261
  2,380
  2,504
  2,634
  2,770
  2,913
  3,063
  3,220
  3,385
  3,557
Working capital, $m
  17
  18
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  66
  69
  72
  76
  80
  84
Total debt, $m
  323
  368
  415
  464
  515
  568
  623
  681
  740
  803
  868
  936
  1,007
  1,081
  1,159
  1,240
  1,324
  1,413
  1,505
  1,603
  1,704
  1,811
  1,922
  2,039
  2,161
  2,290
  2,424
  2,565
  2,713
  2,868
Total liabilities, $m
  649
  694
  741
  790
  841
  894
  949
  1,007
  1,067
  1,129
  1,194
  1,262
  1,333
  1,407
  1,485
  1,566
  1,651
  1,739
  1,832
  1,929
  2,030
  2,137
  2,248
  2,365
  2,488
  2,616
  2,750
  2,891
  3,039
  3,194
Total equity, $m
  315
  337
  360
  384
  409
  435
  461
  489
  518
  549
  580
  613
  648
  684
  721
  761
  802
  845
  890
  937
  987
  1,038
  1,092
  1,149
  1,209
  1,271
  1,336
  1,405
  1,477
  1,552
Total liabilities and equity, $m
  964
  1,031
  1,101
  1,174
  1,250
  1,329
  1,410
  1,496
  1,585
  1,678
  1,774
  1,875
  1,981
  2,091
  2,206
  2,327
  2,453
  2,584
  2,722
  2,866
  3,017
  3,175
  3,340
  3,514
  3,697
  3,887
  4,086
  4,296
  4,516
  4,746
Debt-to-equity ratio
  1.020
  1.090
  1.150
  1.210
  1.260
  1.310
  1.350
  1.390
  1.430
  1.460
  1.500
  1.530
  1.550
  1.580
  1.610
  1.630
  1.650
  1.670
  1.690
  1.710
  1.730
  1.740
  1.760
  1.770
  1.790
  1.800
  1.810
  1.830
  1.840
  1.850
Adjusted equity ratio
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  16
  16
  17
  17
  18
  18
  19
  19
  20
  25
  26
  27
  28
  28
  29
  30
  31
  32
  33
  34
  35
  36
  37
  39
  40
  41
  43
  44
  46
Depreciation, amort., depletion, $m
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
  44
  47
  49
  52
  55
  58
  61
  65
  68
  72
  75
  79
  83
  88
  92
  97
  102
  107
  113
  119
Funds from operations, $m
  46
  48
  50
  53
  55
  57
  60
  63
  66
  69
  70
  73
  76
  80
  84
  87
  91
  96
  100
  105
  109
  114
  120
  125
  131
  137
  143
  150
  157
  164
Change in working capital, $m
  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
  4
  4
  4
  4
Cash from operations, $m
  45
  47
  49
  51
  54
  56
  59
  61
  64
  67
  68
  71
  75
  78
  81
  85
  89
  93
  97
  102
  107
  112
  117
  122
  128
  134
  140
  146
  153
  160
Maintenance CAPEX, $m
  -22
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -75
  -79
  -83
  -88
  -92
  -97
  -102
  -107
  -113
New CAPEX, $m
  -49
  -50
  -52
  -55
  -57
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -99
  -103
  -108
  -113
  -119
  -124
  -130
  -136
  -143
  -150
  -157
  -165
  -173
Cash from investing activities, $m
  -71
  -74
  -78
  -83
  -86
  -90
  -94
  -99
  -104
  -110
  -115
  -120
  -126
  -132
  -138
  -145
  -152
  -160
  -168
  -176
  -185
  -194
  -203
  -213
  -224
  -235
  -247
  -259
  -272
  -286
Free cash flow, $m
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -102
  -107
  -113
  -119
  -125
Issuance/(repayment) of debt, $m
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
  135
  141
  148
  155
Issuance/(repurchase) of shares, $m
  7
  6
  7
  7
  8
  8
  9
  9
  10
  10
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  26
  28
  30
Cash from financing (excl. dividends), $m  
  51
  51
  54
  56
  59
  61
  64
  66
  70
  72
  71
  75
  79
  82
  86
  91
  96
  101
  106
  111
  117
  123
  129
  136
  143
  150
  159
  167
  176
  185
Total cash flow (excl. dividends), $m
  24
  24
  25
  25
  26
  27
  28
  29
  30
  31
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
Retained Cash Flow (-), $m
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -65
  -69
  -72
  -75
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
  2
  2
  2
  2
  1
  1
  1
  1
  1
  0
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Discount rate, %
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  99.2
  98.5
  97.8
  97.1
  96.5
  95.8
  95.1
  94.5
  93.8
  93.2
  92.8
  92.4
  92.0
  91.6
  91.2
  90.7
  90.3
  89.8
  89.3
  88.8
  88.3
  87.8
  87.3
  86.7
  86.2
  85.6
  85.1
  84.5
  83.9
  83.3

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 33.9
Price to Sales 7.9
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 23.6
Price to Free Cash Flow -22.9
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 $107.054 million for the last fiscal year's total revenue generated by Connecticut Water Service. The default revenue input number comes from 0001 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 7.2% 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 8.1%, 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 69.2%.

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.

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 629.8%.

Life of production assets of 40 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 14.9%. 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 - $293.63 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 12.089 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 $0.8 billion.

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COMPANY NEWS

▶ Connecticut Water Service: 3Q Earnings Snapshot   [Nov-09-18 04:13PM  Associated Press]
▶ Connecticut Water Sends Letter to Shareholders   [Oct-15-18 07:00AM  PR Newswire]
▶ Connecticut Water Service, Inc. Declares Cash Dividend   [Aug-17-18 11:01AM  GlobeNewswire]
▶ Connecticut Water Service: 2Q Earnings Snapshot   [Aug-09-18 11:08AM  Associated Press]
▶ [$$] Connecticut Water Opens Door to Counter Offers in SJW Deal   [May-31-18 04:49PM  The Wall Street Journal]
▶ Connecticut Water Service: 1Q Earnings Snapshot   [May-09-18 02:21PM  Associated Press]
▶ [$$] California Water Takes SJW Offer Public   [Apr-26-18 12:18PM  The Wall Street Journal]
▶ [$$] California Water Made Takeover Bid for SJW   [12:06AM  The Wall Street Journal]
▶ [$$] California Water Made Takeover Bid for SJW   [Apr-25-18 07:30PM  The Wall Street Journal]
▶ [$$] Big Water Companies Set to Merge   [07:44AM  The Wall Street Journal]
▶ Connecticut Water Service posts 4Q profit   [07:31AM  Associated Press]
▶ [$$] Big Water Companies Set to Merge   [01:47AM  The Wall Street Journal]
▶ 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]

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