Intrinsic value of SJW Group - SJW

Previous Close

$56.81

  Intrinsic Value

$16.62

stock screener

  Rating & Target

str. sell

-71%

Previous close

$56.81

 
Intrinsic value

$16.62

 
Up/down potential

-71%

 
Rating

str. sell

We calculate the intrinsic value of SJW 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 1.2

 

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
  397
  406
  417
  428
  441
  456
  471
  488
  506
  525
  546
  568
  592
  617
  644
  672
  702
  733
  767
  802
  839
  878
  919
  963
  1,009
  1,057
  1,108
  1,161
  1,218
  1,277
Variable operating expenses, $m
  288
  294
  302
  311
  320
  330
  342
  354
  367
  381
  396
  412
  429
  447
  467
  487
  509
  532
  556
  581
  608
  637
  667
  698
  731
  766
  803
  842
  883
  926
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
  288
  294
  302
  311
  320
  330
  342
  354
  367
  381
  396
  412
  429
  447
  467
  487
  509
  532
  556
  581
  608
  637
  667
  698
  731
  766
  803
  842
  883
  926
Operating income, $m
  109
  112
  115
  118
  121
  125
  130
  134
  139
  144
  150
  156
  163
  170
  177
  185
  193
  202
  211
  220
  231
  241
  253
  265
  277
  291
  305
  319
  335
  351
EBITDA, $m
  161
  164
  169
  173
  179
  184
  191
  197
  205
  213
  221
  230
  239
  250
  260
  272
  284
  297
  310
  324
  339
  355
  372
  390
  408
  428
  448
  470
  493
  517
Interest expense (income), $m
  24
  25
  26
  27
  28
  30
  32
  34
  36
  38
  41
  43
  46
  49
  53
  56
  60
  64
  68
  72
  77
  82
  87
  92
  98
  104
  110
  117
  124
  131
  139
Earnings before tax, $m
  85
  86
  88
  89
  91
  93
  96
  98
  101
  104
  107
  110
  113
  117
  121
  125
  129
  134
  139
  144
  149
  155
  161
  167
  174
  181
  188
  196
  204
  212
Tax expense, $m
  23
  23
  24
  24
  25
  25
  26
  27
  27
  28
  29
  30
  31
  32
  33
  34
  35
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
Net income, $m
  62
  63
  64
  65
  67
  68
  70
  72
  74
  76
  78
  80
  83
  85
  88
  91
  94
  98
  101
  105
  109
  113
  117
  122
  127
  132
  137
  143
  149
  155

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
  1,487
  1,521
  1,560
  1,604
  1,653
  1,706
  1,764
  1,827
  1,895
  1,968
  2,045
  2,128
  2,217
  2,311
  2,410
  2,516
  2,628
  2,746
  2,871
  3,003
  3,142
  3,289
  3,444
  3,607
  3,778
  3,959
  4,149
  4,350
  4,560
  4,782
Adjusted assets (=assets-cash), $m
  1,487
  1,521
  1,560
  1,604
  1,653
  1,706
  1,764
  1,827
  1,895
  1,968
  2,045
  2,128
  2,217
  2,311
  2,410
  2,516
  2,628
  2,746
  2,871
  3,003
  3,142
  3,289
  3,444
  3,607
  3,778
  3,959
  4,149
  4,350
  4,560
  4,782
Revenue / Adjusted assets
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
  0.267
Average production assets, $m
  1,266
  1,295
  1,328
  1,366
  1,407
  1,453
  1,502
  1,556
  1,613
  1,675
  1,742
  1,812
  1,888
  1,967
  2,052
  2,142
  2,238
  2,338
  2,445
  2,557
  2,675
  2,800
  2,932
  3,071
  3,217
  3,371
  3,533
  3,704
  3,883
  4,072
Working capital, $m
  -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
  -4
  -4
Total debt, $m
  475
  499
  525
  555
  588
  625
  664
  707
  754
  803
  856
  913
  973
  1,037
  1,105
  1,177
  1,253
  1,334
  1,419
  1,509
  1,604
  1,704
  1,810
  1,921
  2,038
  2,161
  2,291
  2,428
  2,571
  2,723
Total liabilities, $m
  1,014
  1,037
  1,064
  1,094
  1,127
  1,164
  1,203
  1,246
  1,292
  1,342
  1,395
  1,452
  1,512
  1,576
  1,644
  1,716
  1,792
  1,873
  1,958
  2,048
  2,143
  2,243
  2,349
  2,460
  2,577
  2,700
  2,830
  2,966
  3,110
  3,261
Total equity, $m
  473
  484
  496
  510
  526
  543
  561
  581
  603
  626
  650
  677
  705
  735
  767
  800
  836
  873
  913
  955
  999
  1,046
  1,095
  1,147
  1,202
  1,259
  1,320
  1,383
  1,450
  1,521
Total liabilities and equity, $m
  1,487
  1,521
  1,560
  1,604
  1,653
  1,707
  1,764
  1,827
  1,895
  1,968
  2,045
  2,129
  2,217
  2,311
  2,411
  2,516
  2,628
  2,746
  2,871
  3,003
  3,142
  3,289
  3,444
  3,607
  3,779
  3,959
  4,150
  4,349
  4,560
  4,782
Debt-to-equity ratio
  1.010
  1.030
  1.060
  1.090
  1.120
  1.150
  1.180
  1.220
  1.250
  1.280
  1.320
  1.350
  1.380
  1.410
  1.440
  1.470
  1.500
  1.530
  1.550
  1.580
  1.610
  1.630
  1.650
  1.670
  1.700
  1.720
  1.740
  1.760
  1.770
  1.790
Adjusted equity ratio
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318
  0.318

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  62
  63
  64
  65
  67
  68
  70
  72
  74
  76
  78
  80
  83
  85
  88
  91
  94
  98
  101
  105
  109
  113
  117
  122
  127
  132
  137
  143
  149
  155
Depreciation, amort., depletion, $m
  51
  53
  54
  56
  57
  59
  61
  63
  66
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
  158
  166
Funds from operations, $m
  113
  115
  118
  121
  124
  127
  131
  135
  139
  144
  149
  154
  160
  165
  172
  178
  185
  193
  201
  209
  218
  227
  237
  247
  258
  269
  281
  293
  307
  320
Change in working capital, $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 operations, $m
  113
  115
  118
  121
  124
  127
  131
  135
  139
  144
  149
  154
  160
  166
  172
  178
  185
  193
  201
  209
  218
  227
  237
  247
  258
  269
  281
  294
  307
  321
Maintenance CAPEX, $m
  -50
  -51
  -53
  -54
  -56
  -57
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -158
New CAPEX, $m
  -25
  -29
  -33
  -37
  -41
  -45
  -49
  -54
  -58
  -62
  -66
  -71
  -75
  -80
  -85
  -90
  -95
  -101
  -106
  -112
  -119
  -125
  -132
  -139
  -146
  -154
  -162
  -170
  -179
  -189
Cash from investing activities, $m
  -75
  -80
  -86
  -91
  -97
  -102
  -108
  -115
  -121
  -128
  -134
  -142
  -149
  -157
  -165
  -173
  -182
  -192
  -201
  -211
  -223
  -234
  -246
  -258
  -271
  -285
  -299
  -314
  -330
  -347
Free cash flow, $m
  37
  35
  32
  29
  27
  25
  23
  20
  18
  16
  14
  13
  11
  9
  7
  5
  3
  1
  -1
  -3
  -5
  -7
  -9
  -11
  -13
  -16
  -18
  -21
  -23
  -26
Issuance/(repayment) of debt, $m
  19
  23
  27
  30
  33
  36
  40
  43
  46
  50
  53
  57
  60
  64
  68
  72
  76
  81
  85
  90
  95
  100
  106
  111
  117
  123
  130
  137
  144
  151
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
  23
  27
  30
  33
  36
  40
  43
  46
  50
  53
  57
  60
  64
  68
  72
  76
  81
  85
  90
  95
  100
  106
  111
  117
  123
  130
  137
  144
  151
Total cash flow (excl. dividends), $m
  57
  58
  59
  59
  60
  61
  62
  63
  65
  66
  68
  69
  71
  73
  75
  77
  79
  82
  85
  87
  90
  93
  97
  100
  104
  108
  112
  116
  120
  125
Retained Cash Flow (-), $m
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -57
  -61
  -64
  -67
  -70
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
  47
  47
  46
  45
  45
  44
  44
  43
  43
  43
  43
  43
  43
  43
  43
  44
  44
  44
  45
  45
  46
  47
  47
  48
  49
  50
  51
  52
  54
  55
Discount rate, %
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
  44
  41
  37
  33
  29
  26
  23
  20
  17
  14
  12
  10
  8
  7
  6
  4
  3
  3
  2
  1
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

SJW Group, formerly SJW Corp., is a holding company. The Company's subsidiaries include San Jose Water Company, SJWTX, Inc. and SJW Land Company. SJWTX, Inc. is doing business as Canyon Lake Water Service Company (CLWSC). It operates through the segments, which include Water Utility Services, Real Estate Services and All Other. Its Water Utility Services segment provides water utility and utility-related services to its customers through its subsidiaries, such as San Jose Water Company, CLWSC and TWA. The Real Estate Services segment includes property management and investment activity conducted by SJW Land Company. The Company's All Other segment includes its other business activities. San Jose Water Company distributes water to customers in accordance with accepted water utility methods. SJW Land Company owns undeveloped land, and owns and operates a portfolio of commercial buildings in the states of California, Texas, Arizona and Tennessee.

FINANCIAL RATIOS  of  SJW Group (SJW)

Valuation Ratios
P/E Ratio 21.9
Price to Sales 3.4
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 10.2
Price to Free Cash Flow -41.5
Growth Rates
Sales Growth Rate 11.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 32.7%
Cap. Spend. - 3 Yr. Gr. Rate 8.6%
Financial Strength
Quick Ratio 0
Current Ratio 1
LT Debt to Equity 102.8%
Total Debt to Equity 106.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.9%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 6.4%
Ret/ On T. Cap. - 3 Yr. Avg. 6.2%
Return On Equity 13.2%
Return On Equity - 3 Yr. Avg. 12.9%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 45.9%
EBITDA Margin - 3 Yr. Avg. 43.4%
Operating Margin 27.4%
Oper. Margin - 3 Yr. Avg. 27.5%
Pre-Tax Margin 25.3%
Pre-Tax Margin - 3 Yr. Avg. 23.1%
Net Profit Margin 15.6%
Net Profit Margin - 3 Yr. Avg. 14.8%
Effective Tax Rate 38.4%
Eff/ Tax Rate - 3 Yr. Avg. 36.2%
Payout Ratio 32.1%

SJW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SJW stock intrinsic value calculation we used $389.225 million for the last fiscal year's total revenue generated by SJW Group. The default revenue input number comes from 0001 income statement of SJW Group. 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 SJW 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 7.4%, whose default value for SJW is calculated based on our internal credit rating of SJW Group, 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 SJW Group.
    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 SJW stock the variable cost ratio is equal to 72.5%.

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 SJW 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 SJW Group.

Corporate tax rate of 27% is the nominal tax rate for SJW Group. 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 SJW 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 SJW are equal to 318.9%.

Life of production assets of 24.6 years is the average useful life of capital assets used in SJW Group 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 SJW is equal to -0.3%. 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 - $463.209 million for SJW Group - 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 20.618 million for SJW Group 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 SJW Group at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ SJW Group Announces Pricing of Offering of Common Stock   [Nov-28-18 06:32PM  Business Wire]
▶ SJW Group Announces Proposed Offering of Common Stock   [Nov-26-18 04:15PM  Business Wire]
▶ San Jose Water Wins NARUC Water Industry Innovation Award   [Nov-12-18 04:45PM  Business Wire]
▶ SJW (SJW) Q3 Earnings Surpass Estimates   [Oct-24-18 07:50PM  Zacks]
▶ SJW: 3Q Earnings Snapshot   [06:51PM  Associated Press]
▶ How Good Is SJW Group (NYSE:SJW), When It Comes To ROE?   [Oct-18-18 03:22PM  Simply Wall St.]
▶ Connecticut Water Sends Letter to Shareholders   [Oct-15-18 07:00AM  PR Newswire]
▶ California Water raises offer to buy SJW Group   [Aug-13-18 07:31PM  Reuters]
▶ SJW: 2Q Earnings Snapshot   [Jul-25-18 07:31PM  Associated Press]
▶ [$$] Connecticut Water Opens Door to Counter Offers in SJW Deal   [May-31-18 04:49PM  The Wall Street Journal]
▶ [$$] California Water Takes SJW Offer Public   [12:18PM  The Wall Street Journal]
▶ [$$] California Water Made Takeover Bid for SJW   [12:06AM  The Wall Street Journal]
▶ SJW Group Announces Quarterly Dividend   [Apr-25-18 09:00PM  Business Wire]
▶ SJW: 1Q Earnings Snapshot   [07:19PM  Associated Press]
▶ [$$] California Water Made Takeover Bid for SJW   [06:44PM  The Wall Street Journal]
▶ [$$] Big Water Companies Set to Merge   [07:44AM  The Wall Street Journal]
▶ [$$] Big Water Companies Set to Merge   [01:47AM  The Wall Street Journal]
▶ SJW posts 4Q profit   [05:03AM  Associated Press]

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