Intrinsic value of AquaVenture Holdings Limited - WAAS

Previous Close

$18.99

  Intrinsic Value

$12.50

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  Rating & Target

sell

-34%

Previous close

$18.99

 
Intrinsic value

$12.50

 
Up/down potential

-34%

 
Rating

sell

We calculate the intrinsic value of WAAS 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 0.5

 

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, %
  29.90
  27.41
  25.17
  23.15
  21.34
  19.70
  18.23
  16.91
  15.72
  14.65
  13.68
  12.81
  12.03
  11.33
  10.70
  10.13
  9.61
  9.15
  8.74
  8.36
  8.03
  7.72
  7.45
  7.21
  6.99
  6.79
  6.61
  6.45
  6.30
  6.17
Revenue, $m
  190
  242
  302
  372
  452
  541
  640
  748
  865
  992
  1,128
  1,272
  1,425
  1,587
  1,757
  1,935
  2,121
  2,315
  2,517
  2,727
  2,946
  3,174
  3,410
  3,656
  3,912
  4,177
  4,453
  4,740
  5,039
  5,350
Variable operating expenses, $m
  161
  194
  233
  278
  329
  386
  449
  518
  593
  674
  722
  814
  912
  1,015
  1,124
  1,238
  1,357
  1,481
  1,610
  1,745
  1,885
  2,031
  2,182
  2,339
  2,503
  2,672
  2,849
  3,033
  3,224
  3,423
Fixed operating expenses, $m
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
  28
  28
  29
  29
  30
  31
  31
  32
  33
  33
  34
  35
  36
  36
Total operating expenses, $m
  180
  214
  253
  299
  350
  408
  471
  541
  616
  698
  746
  839
  937
  1,041
  1,150
  1,265
  1,385
  1,509
  1,639
  1,774
  1,915
  2,062
  2,213
  2,371
  2,536
  2,705
  2,883
  3,068
  3,260
  3,459
Operating income, $m
  9
  28
  49
  74
  102
  134
  169
  207
  249
  294
  382
  434
  488
  546
  606
  670
  736
  806
  878
  953
  1,031
  1,113
  1,197
  1,285
  1,376
  1,471
  1,570
  1,673
  1,780
  1,891
EBITDA, $m
  79
  105
  136
  172
  212
  258
  308
  364
  424
  489
  558
  632
  711
  794
  881
  972
  1,068
  1,167
  1,271
  1,379
  1,492
  1,609
  1,730
  1,856
  1,988
  2,124
  2,266
  2,413
  2,567
  2,727
Interest expense (income), $m
  11
  20
  26
  35
  45
  56
  68
  83
  98
  116
  134
  155
  176
  200
  224
  250
  277
  305
  335
  366
  398
  432
  467
  503
  541
  581
  621
  664
  708
  754
  802
Earnings before tax, $m
  -10
  1
  14
  29
  46
  65
  86
  109
  133
  160
  227
  257
  289
  322
  357
  393
  431
  471
  512
  555
  599
  646
  694
  744
  796
  850
  906
  965
  1,026
  1,089
Tax expense, $m
  0
  0
  4
  8
  13
  18
  23
  29
  36
  43
  61
  69
  78
  87
  96
  106
  116
  127
  138
  150
  162
  174
  187
  201
  215
  229
  245
  260
  277
  294
Net income, $m
  -10
  1
  10
  21
  34
  48
  63
  79
  97
  117
  166
  188
  211
  235
  260
  287
  315
  344
  374
  405
  437
  471
  506
  543
  581
  620
  662
  704
  749
  795

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
  912
  1,162
  1,454
  1,791
  2,173
  2,601
  3,075
  3,595
  4,160
  4,770
  5,422
  6,117
  6,853
  7,630
  8,446
  9,301
  10,195
  11,128
  12,101
  13,113
  14,165
  15,259
  16,397
  17,578
  18,806
  20,083
  21,410
  22,790
  24,227
  25,722
Adjusted assets (=assets-cash), $m
  912
  1,162
  1,454
  1,791
  2,173
  2,601
  3,075
  3,595
  4,160
  4,770
  5,422
  6,117
  6,853
  7,630
  8,446
  9,301
  10,195
  11,128
  12,101
  13,113
  14,165
  15,259
  16,397
  17,578
  18,806
  20,083
  21,410
  22,790
  24,227
  25,722
Revenue / Adjusted assets
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
Average production assets, $m
  388
  495
  619
  762
  925
  1,107
  1,309
  1,531
  1,771
  2,031
  2,309
  2,605
  2,918
  3,248
  3,596
  3,960
  4,341
  4,738
  5,152
  5,583
  6,031
  6,497
  6,981
  7,484
  8,007
  8,551
  9,116
  9,704
  10,315
  10,952
Working capital, $m
  13
  17
  21
  26
  32
  38
  45
  53
  61
  70
  80
  90
  101
  113
  125
  137
  151
  164
  179
  194
  209
  225
  242
  260
  278
  297
  316
  337
  358
  380
Total debt, $m
  434
  570
  730
  913
  1,122
  1,355
  1,613
  1,897
  2,205
  2,537
  2,893
  3,271
  3,672
  4,095
  4,540
  5,006
  5,494
  6,002
  6,532
  7,084
  7,657
  8,254
  8,873
  9,517
  10,187
  10,882
  11,606
  12,358
  13,141
  13,956
Total liabilities, $m
  497
  633
  792
  976
  1,184
  1,418
  1,676
  1,959
  2,267
  2,599
  2,955
  3,334
  3,735
  4,158
  4,603
  5,069
  5,556
  6,065
  6,595
  7,146
  7,720
  8,316
  8,936
  9,580
  10,249
  10,945
  11,668
  12,421
  13,204
  14,019
Total equity, $m
  415
  529
  662
  815
  989
  1,183
  1,399
  1,636
  1,893
  2,170
  2,467
  2,783
  3,118
  3,471
  3,843
  4,232
  4,639
  5,063
  5,506
  5,966
  6,445
  6,943
  7,460
  7,998
  8,557
  9,138
  9,742
  10,370
  11,023
  11,704
Total liabilities and equity, $m
  912
  1,162
  1,454
  1,791
  2,173
  2,601
  3,075
  3,595
  4,160
  4,769
  5,422
  6,117
  6,853
  7,629
  8,446
  9,301
  10,195
  11,128
  12,101
  13,112
  14,165
  15,259
  16,396
  17,578
  18,806
  20,083
  21,410
  22,791
  24,227
  25,723
Debt-to-equity ratio
  1.050
  1.080
  1.100
  1.120
  1.130
  1.140
  1.150
  1.160
  1.160
  1.170
  1.170
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
Adjusted equity ratio
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -10
  1
  10
  21
  34
  48
  63
  79
  97
  117
  166
  188
  211
  235
  260
  287
  315
  344
  374
  405
  437
  471
  506
  543
  581
  620
  662
  704
  749
  795
Depreciation, amort., depletion, $m
  69
  77
  87
  98
  110
  124
  140
  156
  175
  195
  176
  199
  223
  248
  275
  302
  331
  362
  393
  426
  460
  496
  533
  571
  611
  653
  696
  741
  787
  836
Funds from operations, $m
  59
  78
  97
  119
  144
  172
  202
  236
  272
  311
  342
  387
  434
  483
  535
  589
  646
  705
  767
  831
  898
  967
  1,039
  1,114
  1,192
  1,273
  1,357
  1,445
  1,536
  1,631
Change in working capital, $m
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
Cash from operations, $m
  56
  74
  93
  114
  138
  165
  195
  228
  264
  302
  333
  376
  423
  471
  523
  577
  633
  691
  753
  816
  882
  951
  1,023
  1,097
  1,174
  1,254
  1,338
  1,425
  1,515
  1,609
Maintenance CAPEX, $m
  -23
  -30
  -38
  -47
  -58
  -71
  -85
  -100
  -117
  -135
  -155
  -176
  -199
  -223
  -248
  -275
  -302
  -331
  -362
  -393
  -426
  -460
  -496
  -533
  -571
  -611
  -653
  -696
  -741
  -787
New CAPEX, $m
  -89
  -106
  -124
  -143
  -163
  -182
  -202
  -221
  -241
  -259
  -278
  -296
  -313
  -331
  -347
  -364
  -381
  -397
  -414
  -431
  -448
  -466
  -484
  -503
  -523
  -543
  -565
  -588
  -612
  -637
Cash from investing activities, $m
  -112
  -136
  -162
  -190
  -221
  -253
  -287
  -321
  -358
  -394
  -433
  -472
  -512
  -554
  -595
  -639
  -683
  -728
  -776
  -824
  -874
  -926
  -980
  -1,036
  -1,094
  -1,154
  -1,218
  -1,284
  -1,353
  -1,424
Free cash flow, $m
  -56
  -62
  -69
  -76
  -83
  -87
  -91
  -93
  -94
  -92
  -100
  -96
  -90
  -82
  -73
  -62
  -50
  -37
  -23
  -8
  8
  25
  42
  61
  80
  100
  120
  141
  163
  185
Issuance/(repayment) of debt, $m
  115
  136
  159
  183
  208
  233
  258
  283
  308
  332
  356
  379
  401
  423
  445
  466
  487
  509
  530
  552
  574
  596
  620
  644
  669
  696
  723
  752
  783
  815
Issuance/(repurchase) of shares, $m
  106
  113
  123
  132
  140
  147
  153
  157
  160
  161
  131
  128
  124
  118
  111
  102
  92
  81
  69
  56
  41
  27
  11
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  221
  249
  282
  315
  348
  380
  411
  440
  468
  493
  487
  507
  525
  541
  556
  568
  579
  590
  599
  608
  615
  623
  631
  644
  669
  696
  723
  752
  783
  815
Total cash flow (excl. dividends), $m
  164
  188
  213
  239
  266
  293
  320
  347
  374
  400
  386
  411
  436
  460
  483
  506
  529
  552
  576
  599
  623
  648
  673
  705
  749
  795
  843
  893
  946
  1,000
Retained Cash Flow (-), $m
  -106
  -114
  -133
  -153
  -174
  -195
  -216
  -237
  -257
  -277
  -297
  -316
  -335
  -353
  -371
  -389
  -407
  -425
  -442
  -460
  -479
  -498
  -517
  -538
  -559
  -581
  -604
  -628
  -654
  -680
Prev. year cash balance distribution, $m
  17
  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
  75
  74
  80
  86
  92
  98
  105
  111
  117
  123
  89
  95
  101
  106
  112
  117
  122
  128
  133
  139
  144
  150
  156
  167
  190
  214
  239
  265
  292
  320
Discount rate, %
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
  70
  63
  63
  61
  59
  56
  53
  49
  45
  40
  25
  22
  19
  16
  14
  11
  9
  7
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  82.1
  69.7
  60.4
  53.4
  48.0
  43.7
  40.3
  37.5
  35.3
  33.4
  32.1
  31.0
  30.2
  29.4
  28.8
  28.3
  27.9
  27.6
  27.4
  27.2
  27.1
  27.0
  27.0
  27.0
  27.0
  27.0
  27.0
  27.0
  27.0
  27.0

AquaVenture Holdings Limited is a multinational provider of Water-as-a-Service solutions. The Company's segments are Seven Seas Water and Quench. The Seven Seas Water segment provides outsourced desalination solutions and wastewater treatment for governmental, municipal, industrial and hospitality customers. The Quench segment provides bottleless filtered water coolers and other products that use filtered water as an input, such as ice machines, sparkling water dispensers and coffee brewers, to customers throughout the United States typically under multi-year contracts. The Company's solutions utilize seawater reverse osmosis and other purification technologies to produce potable and industrial process water in high volumes for customers operating in regions with limited access to potable water. As of December 31, 2016, it operated 10 water treatment facilities in the Caribbean region and South America producing approximately eight billion gallons of purified water per year.

FINANCIAL RATIOS  of  AquaVenture Holdings Limited (WAAS)

Valuation Ratios
P/E Ratio -25.1
Price to Sales 4.4
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 35.8
Price to Free Cash Flow -125.3
Growth Rates
Sales Growth Rate 14%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -14.3%
Cap. Spend. - 3 Yr. Gr. Rate -15.6%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 31.5%
Total Debt to Equity 39.1%
Interest Coverage -1
Management Effectiveness
Return On Assets -1.9%
Ret/ On Assets - 3 Yr. Avg. -3.5%
Return On Total Capital -4.4%
Ret/ On T. Cap. - 3 Yr. Avg. -5.4%
Return On Equity -6.3%
Return On Equity - 3 Yr. Avg. -7.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 49.1%
Gross Margin - 3 Yr. Avg. 48.5%
EBITDA Margin 18.4%
EBITDA Margin - 3 Yr. Avg. 10.9%
Operating Margin -9.6%
Oper. Margin - 3 Yr. Avg. -12.7%
Pre-Tax Margin -17.5%
Pre-Tax Margin - 3 Yr. Avg. -20.8%
Net Profit Margin -17.5%
Net Profit Margin - 3 Yr. Avg. -20.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 14.1%
Payout Ratio 0%

WAAS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WAAS stock intrinsic value calculation we used $146 million for the last fiscal year's total revenue generated by AquaVenture Holdings Limited. The default revenue input number comes from 0001 income statement of AquaVenture Holdings Limited. 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 WAAS stock valuation model: a) initial revenue growth rate of 29.9% 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 7.6%, whose default value for WAAS is calculated based on our internal credit rating of AquaVenture Holdings Limited, 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 AquaVenture Holdings Limited.
    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 WAAS stock the variable cost ratio is equal to 91.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $19 million in the base year in the intrinsic value calculation for WAAS 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 6.1% for AquaVenture Holdings Limited.

Corporate tax rate of 27% is the nominal tax rate for AquaVenture Holdings Limited. 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 WAAS 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 WAAS are equal to 204.7%.

Life of production assets of 13.1 years is the average useful life of capital assets used in AquaVenture Holdings Limited 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 WAAS is equal to 7.1%. 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 - $336.598 million for AquaVenture Holdings Limited - 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 26.931 million for AquaVenture Holdings Limited 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 AquaVenture Holdings Limited at the current share price and the inputted number of shares is $0.5 billion.

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