Intrinsic value of California Water Service Group Holding - CWT

Previous Close

$53.73

  Intrinsic Value

$8.74

stock screener

  Rating & Target

str. sell

-84%

Previous close

$53.73

 
Intrinsic value

$8.74

 
Up/down potential

-84%

 
Rating

str. sell

We calculate the intrinsic value of CWT 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 2.6

 

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
  712
  728
  747
  768
  791
  817
  845
  875
  907
  942
  979
  1,019
  1,061
  1,106
  1,154
  1,205
  1,258
  1,315
  1,375
  1,438
  1,504
  1,575
  1,649
  1,727
  1,809
  1,896
  1,987
  2,083
  2,184
  2,290
Variable operating expenses, $m
  562
  575
  589
  606
  624
  644
  666
  690
  716
  743
  772
  804
  837
  872
  910
  950
  992
  1,037
  1,084
  1,134
  1,186
  1,242
  1,300
  1,362
  1,427
  1,495
  1,567
  1,642
  1,722
  1,806
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
  562
  575
  589
  606
  624
  644
  666
  690
  716
  743
  772
  804
  837
  872
  910
  950
  992
  1,037
  1,084
  1,134
  1,186
  1,242
  1,300
  1,362
  1,427
  1,495
  1,567
  1,642
  1,722
  1,806
Operating income, $m
  150
  154
  158
  162
  167
  172
  178
  185
  192
  199
  207
  215
  224
  234
  244
  255
  266
  278
  291
  304
  318
  333
  349
  365
  383
  401
  420
  440
  462
  484
EBITDA, $m
  238
  243
  250
  257
  264
  273
  282
  292
  303
  315
  327
  341
  355
  370
  386
  403
  420
  439
  459
  480
  503
  526
  551
  577
  605
  633
  664
  696
  730
  765
Interest expense (income), $m
  28
  48
  50
  53
  56
  59
  63
  67
  71
  76
  82
  87
  93
  100
  107
  114
  122
  130
  139
  148
  158
  168
  179
  191
  203
  215
  229
  243
  258
  273
  290
Earnings before tax, $m
  103
  104
  105
  107
  108
  110
  111
  113
  115
  117
  120
  122
  124
  127
  130
  133
  136
  139
  142
  146
  150
  154
  158
  162
  167
  172
  177
  183
  188
  194
Tax expense, $m
  28
  28
  28
  29
  29
  30
  30
  31
  31
  32
  32
  33
  34
  34
  35
  36
  37
  38
  38
  39
  40
  42
  43
  44
  45
  46
  48
  49
  51
  52
Net income, $m
  75
  76
  77
  78
  79
  80
  81
  83
  84
  86
  87
  89
  91
  93
  95
  97
  99
  102
  104
  107
  109
  112
  115
  119
  122
  126
  129
  133
  137
  142

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
  2,894
  2,961
  3,037
  3,122
  3,217
  3,321
  3,434
  3,556
  3,688
  3,830
  3,981
  4,143
  4,315
  4,498
  4,692
  4,897
  5,115
  5,345
  5,588
  5,845
  6,116
  6,402
  6,703
  7,020
  7,354
  7,706
  8,076
  8,466
  8,876
  9,307
Adjusted assets (=assets-cash), $m
  2,894
  2,961
  3,037
  3,122
  3,217
  3,321
  3,434
  3,556
  3,688
  3,830
  3,981
  4,143
  4,315
  4,498
  4,692
  4,897
  5,115
  5,345
  5,588
  5,845
  6,116
  6,402
  6,703
  7,020
  7,354
  7,706
  8,076
  8,466
  8,876
  9,307
Revenue / Adjusted assets
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
Average production assets, $m
  2,184
  2,235
  2,292
  2,356
  2,428
  2,506
  2,592
  2,684
  2,784
  2,890
  3,005
  3,127
  3,256
  3,394
  3,541
  3,696
  3,860
  4,034
  4,218
  4,411
  4,616
  4,831
  5,059
  5,298
  5,550
  5,816
  6,096
  6,390
  6,699
  7,025
Working capital, $m
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
Total debt, $m
  923
  972
  1,029
  1,092
  1,163
  1,240
  1,324
  1,415
  1,513
  1,618
  1,730
  1,851
  1,978
  2,114
  2,258
  2,411
  2,573
  2,744
  2,924
  3,115
  3,317
  3,529
  3,753
  3,988
  4,237
  4,498
  4,773
  5,063
  5,368
  5,688
Total liabilities, $m
  2,150
  2,200
  2,256
  2,320
  2,390
  2,467
  2,551
  2,642
  2,740
  2,845
  2,958
  3,078
  3,206
  3,342
  3,486
  3,639
  3,800
  3,971
  4,152
  4,343
  4,544
  4,756
  4,980
  5,216
  5,464
  5,726
  6,001
  6,290
  6,595
  6,915
Total equity, $m
  744
  761
  780
  802
  827
  853
  882
  914
  948
  984
  1,023
  1,065
  1,109
  1,156
  1,206
  1,259
  1,315
  1,374
  1,436
  1,502
  1,572
  1,645
  1,723
  1,804
  1,890
  1,980
  2,076
  2,176
  2,281
  2,392
Total liabilities and equity, $m
  2,894
  2,961
  3,036
  3,122
  3,217
  3,320
  3,433
  3,556
  3,688
  3,829
  3,981
  4,143
  4,315
  4,498
  4,692
  4,898
  5,115
  5,345
  5,588
  5,845
  6,116
  6,401
  6,703
  7,020
  7,354
  7,706
  8,077
  8,466
  8,876
  9,307
Debt-to-equity ratio
  1.240
  1.280
  1.320
  1.360
  1.410
  1.450
  1.500
  1.550
  1.600
  1.640
  1.690
  1.740
  1.780
  1.830
  1.870
  1.920
  1.960
  2.000
  2.040
  2.070
  2.110
  2.140
  2.180
  2.210
  2.240
  2.270
  2.300
  2.330
  2.350
  2.380
Adjusted equity ratio
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257
  0.257

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  75
  76
  77
  78
  79
  80
  81
  83
  84
  86
  87
  89
  91
  93
  95
  97
  99
  102
  104
  107
  109
  112
  115
  119
  122
  126
  129
  133
  137
  142
Depreciation, amort., depletion, $m
  88
  90
  92
  95
  97
  101
  104
  108
  112
  116
  120
  125
  130
  136
  142
  148
  154
  161
  169
  176
  185
  193
  202
  212
  222
  233
  244
  256
  268
  281
Funds from operations, $m
  163
  165
  169
  172
  176
  181
  185
  190
  196
  201
  208
  214
  221
  229
  236
  245
  254
  263
  273
  283
  294
  306
  318
  331
  344
  358
  373
  389
  405
  423
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  163
  166
  169
  173
  177
  181
  186
  191
  196
  202
  208
  215
  222
  229
  237
  245
  254
  264
  274
  284
  295
  307
  319
  332
  345
  359
  374
  390
  407
  424
Maintenance CAPEX, $m
  -86
  -87
  -89
  -92
  -94
  -97
  -100
  -104
  -107
  -111
  -116
  -120
  -125
  -130
  -136
  -142
  -148
  -154
  -161
  -169
  -176
  -185
  -193
  -202
  -212
  -222
  -233
  -244
  -256
  -268
New CAPEX, $m
  -43
  -50
  -57
  -64
  -71
  -78
  -85
  -92
  -100
  -107
  -114
  -122
  -130
  -138
  -146
  -155
  -164
  -174
  -184
  -194
  -204
  -216
  -227
  -239
  -252
  -266
  -280
  -294
  -309
  -325
Cash from investing activities, $m
  -129
  -137
  -146
  -156
  -165
  -175
  -185
  -196
  -207
  -218
  -230
  -242
  -255
  -268
  -282
  -297
  -312
  -328
  -345
  -363
  -380
  -401
  -420
  -441
  -464
  -488
  -513
  -538
  -565
  -593
Free cash flow, $m
  35
  28
  22
  16
  11
  5
  0
  -5
  -11
  -16
  -22
  -27
  -33
  -39
  -45
  -51
  -58
  -64
  -71
  -79
  -86
  -94
  -102
  -110
  -119
  -128
  -138
  -148
  -158
  -169
Issuance/(repayment) of debt, $m
  43
  49
  57
  63
  70
  77
  84
  91
  98
  105
  113
  120
  128
  136
  144
  153
  162
  171
  181
  191
  201
  212
  224
  236
  248
  261
  275
  290
  305
  320
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  
  43
  49
  57
  63
  70
  77
  84
  91
  98
  105
  113
  120
  128
  136
  144
  153
  162
  171
  181
  191
  201
  212
  224
  236
  248
  261
  275
  290
  305
  320
Total cash flow (excl. dividends), $m
  77
  78
  79
  80
  81
  83
  84
  86
  87
  89
  91
  93
  95
  97
  99
  101
  104
  107
  109
  112
  115
  119
  122
  126
  129
  133
  137
  142
  146
  151
Retained Cash Flow (-), $m
  -14
  -17
  -20
  -22
  -24
  -27
  -29
  -31
  -34
  -36
  -39
  -42
  -44
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -70
  -73
  -77
  -82
  -86
  -90
  -95
  -100
  -105
  -111
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
  64
  60
  59
  58
  57
  56
  55
  54
  53
  53
  52
  51
  50
  50
  49
  49
  48
  47
  47
  46
  46
  45
  45
  44
  43
  43
  42
  42
  41
  40
Discount rate, %
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
  59
  52
  46
  41
  36
  32
  28
  24
  20
  17
  14
  12
  9
  7
  6
  5
  3
  3
  2
  1
  1
  1
  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

California Water Service Group is a holding company. The Company operates through the supply and distribution of water and providing water-related utility services segment. The Company, through its subsidiaries, provides non-regulated services and non-regulated services to private companies and municipalities. The bulk of the business consists of the production, purchase, storage, treatment, testing, distribution and sale of water for domestic, industrial, public and irrigation uses, and for fire protection. It also provides non-regulated water-related services. The non-regulated services include water system operation, billing and meter reading services. Non-regulated operations also include the lease of communication antenna sites, lab services and promotion of other non-regulated services. The Company under its non-regulated contract arrangements, operates municipally owned water systems, privately owned water and recycled water distribution systems.

FINANCIAL RATIOS  of  California Water Service Group Holding (CWT)

Valuation Ratios
P/E Ratio 52.6
Price to Sales 4.2
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 16.1
Price to Free Cash Flow -37.4
Growth Rates
Sales Growth Rate 3.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29.4%
Cap. Spend. - 3 Yr. Gr. Rate 13.2%
Financial Strength
Quick Ratio 0
Current Ratio 0.3
LT Debt to Equity 80.7%
Total Debt to Equity 99.4%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.9%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 7.5%
Return On Equity - 3 Yr. Avg. 8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 27.6%
EBITDA Margin - 3 Yr. Avg. 27.6%
Operating Margin 16.6%
Oper. Margin - 3 Yr. Avg. 17%
Pre-Tax Margin 12.3%
Pre-Tax Margin - 3 Yr. Avg. 12.8%
Net Profit Margin 8%
Net Profit Margin - 3 Yr. Avg. 8.4%
Effective Tax Rate 34.7%
Eff/ Tax Rate - 3 Yr. Avg. 34.4%
Payout Ratio 67.3%

CWT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CWT stock intrinsic value calculation we used $698 million for the last fiscal year's total revenue generated by California Water Service Group Holding. The default revenue input number comes from 0001 income statement of California Water Service Group Holding. 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 CWT 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 7.7%, whose default value for CWT is calculated based on our internal credit rating of California Water Service Group Holding, 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 California Water Service Group Holding.
    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 CWT stock the variable cost ratio is equal to 78.9%.

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 CWT 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 California Water Service Group Holding.

Corporate tax rate of 27% is the nominal tax rate for California Water Service Group Holding. 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 CWT 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 CWT are equal to 306.8%.

Life of production assets of 25 years is the average useful life of capital assets used in California Water Service Group Holding 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 CWT is equal to -1.4%. 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 - $730.157 million for California Water Service Group Holding - 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 48.061 million for California Water Service Group Holding 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 California Water Service Group Holding at the current share price and the inputted number of shares is $2.6 billion.

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