Intrinsic value of Middlesex Water Company - MSEX

Previous Close

$56.52

  Intrinsic Value

$11.23

stock screener

  Rating & Target

str. sell

-80%

Previous close

$56.52

 
Intrinsic value

$11.23

 
Up/down potential

-80%

 
Rating

str. sell

We calculate the intrinsic value of MSEX 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 0.9

 

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, %
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
Revenue, $m
  140
  150
  160
  170
  181
  192
  203
  216
  228
  241
  255
  269
  284
  300
  317
  334
  352
  370
  390
  411
  432
  455
  478
  503
  529
  556
  585
  615
  646
  679
Variable operating expenses, $m
  19
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  66
  69
  72
  76
  80
  84
  88
  93
Fixed operating expenses, $m
  78
  79
  81
  83
  85
  87
  89
  90
  92
  94
  97
  99
  101
  103
  105
  108
  110
  112
  115
  117
  120
  123
  125
  128
  131
  134
  137
  140
  143
  146
Total operating expenses, $m
  97
  100
  103
  106
  110
  113
  117
  120
  123
  127
  132
  136
  140
  144
  148
  154
  158
  163
  168
  173
  179
  185
  191
  197
  203
  210
  217
  224
  231
  239
Operating income, $m
  43
  50
  57
  64
  71
  79
  87
  96
  104
  114
  124
  134
  145
  156
  168
  180
  193
  207
  222
  237
  253
  270
  287
  306
  326
  346
  368
  391
  415
  440
EBITDA, $m
  62
  70
  78
  87
  96
  105
  115
  125
  136
  147
  159
  171
  184
  197
  211
  226
  241
  258
  275
  293
  312
  332
  353
  375
  398
  422
  448
  475
  503
  533
Interest expense (income), $m
  5
  9
  11
  13
  14
  16
  18
  20
  22
  24
  27
  29
  31
  34
  37
  40
  42
  45
  49
  52
  56
  59
  63
  67
  71
  76
  80
  85
  90
  96
  101
Earnings before tax, $m
  34
  39
  44
  49
  55
  61
  67
  73
  80
  87
  95
  102
  111
  119
  128
  138
  148
  158
  170
  181
  194
  207
  220
  235
  250
  266
  283
  300
  319
  339
Tax expense, $m
  9
  10
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  72
  76
  81
  86
  91
Net income, $m
  25
  28
  32
  36
  40
  44
  49
  53
  58
  64
  69
  75
  81
  87
  94
  101
  108
  116
  124
  132
  141
  151
  161
  171
  182
  194
  206
  219
  233
  247

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
  708
  756
  806
  858
  912
  969
  1,027
  1,089
  1,152
  1,219
  1,288
  1,361
  1,437
  1,516
  1,599
  1,685
  1,776
  1,870
  1,969
  2,073
  2,182
  2,296
  2,415
  2,540
  2,671
  2,809
  2,953
  3,104
  3,262
  3,428
Adjusted assets (=assets-cash), $m
  708
  756
  806
  858
  912
  969
  1,027
  1,089
  1,152
  1,219
  1,288
  1,361
  1,437
  1,516
  1,599
  1,685
  1,776
  1,870
  1,969
  2,073
  2,182
  2,296
  2,415
  2,540
  2,671
  2,809
  2,953
  3,104
  3,262
  3,428
Revenue / Adjusted assets
  0.198
  0.198
  0.199
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
Average production assets, $m
  575
  614
  655
  697
  741
  787
  835
  884
  936
  990
  1,047
  1,106
  1,167
  1,231
  1,299
  1,369
  1,443
  1,519
  1,600
  1,684
  1,773
  1,865
  1,962
  2,064
  2,170
  2,282
  2,399
  2,521
  2,650
  2,785
Working capital, $m
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
Total debt, $m
  204
  236
  268
  302
  338
  375
  413
  453
  495
  538
  583
  631
  680
  732
  786
  842
  901
  963
  1,028
  1,096
  1,167
  1,241
  1,319
  1,401
  1,486
  1,576
  1,670
  1,769
  1,872
  1,981
Total liabilities, $m
  462
  494
  526
  560
  596
  633
  671
  711
  753
  796
  841
  889
  938
  990
  1,044
  1,100
  1,159
  1,221
  1,286
  1,354
  1,425
  1,499
  1,577
  1,659
  1,744
  1,834
  1,928
  2,027
  2,130
  2,239
Total equity, $m
  246
  262
  280
  298
  317
  336
  357
  378
  400
  423
  447
  472
  499
  526
  555
  585
  616
  649
  683
  719
  757
  797
  838
  881
  927
  975
  1,025
  1,077
  1,132
  1,190
Total liabilities and equity, $m
  708
  756
  806
  858
  913
  969
  1,028
  1,089
  1,153
  1,219
  1,288
  1,361
  1,437
  1,516
  1,599
  1,685
  1,775
  1,870
  1,969
  2,073
  2,182
  2,296
  2,415
  2,540
  2,671
  2,809
  2,953
  3,104
  3,262
  3,429
Debt-to-equity ratio
  0.830
  0.900
  0.960
  1.020
  1.070
  1.110
  1.160
  1.200
  1.240
  1.270
  1.300
  1.340
  1.360
  1.390
  1.420
  1.440
  1.460
  1.480
  1.500
  1.520
  1.540
  1.560
  1.570
  1.590
  1.600
  1.620
  1.630
  1.640
  1.650
  1.660
Adjusted equity ratio
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  28
  32
  36
  40
  44
  49
  53
  58
  64
  69
  75
  81
  87
  94
  101
  108
  116
  124
  132
  141
  151
  161
  171
  182
  194
  206
  219
  233
  247
Depreciation, amort., depletion, $m
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  93
Funds from operations, $m
  44
  49
  54
  59
  65
  71
  77
  83
  90
  97
  104
  112
  120
  128
  137
  146
  156
  166
  177
  188
  200
  213
  226
  240
  255
  270
  286
  303
  321
  340
Change in working capital, $m
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Cash from operations, $m
  44
  49
  54
  60
  65
  71
  77
  84
  90
  97
  105
  112
  120
  129
  138
  147
  157
  167
  178
  190
  202
  214
  227
  241
  256
  272
  288
  305
  323
  342
Maintenance CAPEX, $m
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -88
New CAPEX, $m
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -62
  -64
  -67
  -70
  -74
  -77
  -81
  -84
  -88
  -93
  -97
  -102
  -106
  -112
  -117
  -123
  -129
  -135
Cash from investing activities, $m
  -56
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -81
  -85
  -89
  -94
  -99
  -103
  -108
  -113
  -120
  -125
  -132
  -137
  -144
  -152
  -159
  -167
  -175
  -184
  -193
  -203
  -213
  -223
Free cash flow, $m
  -11
  -9
  -7
  -4
  -2
  1
  3
  6
  9
  12
  15
  19
  22
  26
  30
  34
  38
  42
  47
  52
  57
  63
  68
  74
  81
  88
  95
  102
  110
  118
Issuance/(repayment) of debt, $m
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  52
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  103
  109
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  
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  52
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  103
  109
Total cash flow (excl. dividends), $m
  19
  22
  26
  30
  33
  37
  42
  46
  51
  55
  61
  66
  71
  77
  84
  90
  97
  104
  112
  120
  128
  137
  146
  156
  166
  177
  189
  201
  214
  227
Retained Cash Flow (-), $m
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
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
  3
  6
  9
  12
  15
  18
  21
  25
  28
  32
  36
  41
  45
  50
  55
  60
  66
  71
  77
  84
  90
  97
  105
  113
  121
  130
  139
  148
  159
  169
Discount rate, %
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
  3
  5
  7
  9
  10
  11
  12
  12
  12
  12
  12
  11
  11
  10
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  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
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Middlesex Water Company is a water utility company. The Company owns and operates regulated water utility and wastewater systems in New Jersey, Delaware and Pennsylvania. The Company also operates water and wastewater systems under contract on behalf of municipal and private clients in New Jersey and Delaware. The Company's segments include Regulated and Non-Regulated. The Regulated segment is engaged in the business of collecting, treating and distributing water on a retail and wholesale basis to residential, commercial, industrial and fire protection customers in parts of New Jersey, Delaware and Pennsylvania. The Non-Regulated segment primarily consists of non-regulated contract services for the operation and maintenance of municipal and private water and wastewater systems in New Jersey and Delaware. The Middlesex System treats, stores and distributes water for residential, commercial, industrial and fire protection purposes.

FINANCIAL RATIOS  of  Middlesex Water Company (MSEX)

Valuation Ratios
P/E Ratio 40.1
Price to Sales 6.9
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 19.6
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate 5.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 80.8%
Cap. Spend. - 3 Yr. Gr. Rate 18.6%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 61.1%
Total Debt to Equity 69.2%
Interest Coverage 8
Management Effectiveness
Return On Assets 4.4%
Ret/ On Assets - 3 Yr. Avg. 4.2%
Return On Total Capital 6.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 9.9%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 39.8%
EBITDA Margin - 3 Yr. Avg. 39.6%
Operating Margin 30.8%
Oper. Margin - 3 Yr. Avg. 29.5%
Pre-Tax Margin 25.6%
Pre-Tax Margin - 3 Yr. Avg. 24.7%
Net Profit Margin 17.3%
Net Profit Margin - 3 Yr. Avg. 16.2%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 34.5%
Payout Ratio 56.5%

MSEX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MSEX stock intrinsic value calculation we used $131 million for the last fiscal year's total revenue generated by Middlesex Water Company. The default revenue input number comes from 0001 income statement of Middlesex Water Company. 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 MSEX stock valuation model: a) initial revenue growth rate of 7% 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 6.6%, whose default value for MSEX is calculated based on our internal credit rating of Middlesex Water Company, 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 Middlesex Water Company.
    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 MSEX stock the variable cost ratio is equal to 13.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $76 million in the base year in the intrinsic value calculation for MSEX 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 Middlesex Water Company.

Corporate tax rate of 27% is the nominal tax rate for Middlesex Water Company. 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 MSEX 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 MSEX are equal to 410.3%.

Life of production assets of 36.2 years is the average useful life of capital assets used in Middlesex Water Company 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 MSEX is equal to -5.2%. 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 - $229.175 million for Middlesex Water Company - 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 16.429 million for Middlesex Water Company 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 Middlesex Water Company at the current share price and the inputted number of shares is $0.9 billion.

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