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Published byJulia Riley Modified over 9 years ago
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Fin 601 – Dr. Garner Group #6 Joel Burger Erik Hudzik Marc Joseph Bernard Klemmer LaKysha Owens Jake Ramage
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York Water (YORW) Business is the impounding, purifying, and distribution of water Located in York County Pennsylvania Founded in 1816 Serves ~156,000 people 60 % Residential 27% Commercial 13% Other
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York Water Historical Revenue & Net Income
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YORW vs. NASDAQ % change Time (in quarters)
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YORW vs. Competitors % change Time (in quarters)
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Competition ● As a public utility, they have no true competitors in their territory ● Can be compared to other similar firms
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Competition
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Recent Developments ● Began project in 2003 to increase their territory to Conewago and Springfield Townships ● Estimated to cost $22 million ● Financed by: – Tax exempt bonds – Common Stock issuances – Line of Credit ● Has led to large increase in long term debt
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Recent Developments ● Just finalized deal to buy Spring Grove Borough's water-distribution system for $1.3 million ● Increase customer base by ~1000 ● Plan to have Spring Grove connected to their infrastructure by July
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Profitability Ratios
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Valuation
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Estimating Value of Firm ● Analyze Historical Data – Determine rates of growth for forecast ● Forecast Future Cash Flows ● Determine WACC for Firm ● Compute Net Present Value – Different Scenarios ● Determine Fair Stock Price ● Multiple pricing Methods ● Recommendation
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Historical Data Assume growth of Revenues to be 4.56% for short term Assume Total Operating Costs to be 55.94% of Revenues Assume Depreciation to be 15.89% of Operating Costs Assume corporate tax rate of 35%
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Estimating Capital Expenditures and Net Working Capital ● $27 M expenditure expanding with Susquehanna River pipeline project. – Use the average capitol expenditure rate of $6.7 M per year to estimate for valuation (prior to 2003) ● Estimate NWC at 13% of Revenues – Large amount of short term debt, therefore ● NWC = (AR + Inv.) – (AP)
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Free Cash Flow Forecast Based on all assumed rates for years 2005 through 2010 -2004 estimated from 3Q results -2011 estimated at sustained growth rate
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Weighted Average Cost of Capital Book Value of Debt $39,787,205 Depends on LIBOR, 1% to 1.25% over…At 4.71%, cost of debt is 7.78% Book Value of Equity $39,056,529
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Net Present Value of York Water Company
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Determining Fair Price for YORW Stock Multiple pricing methods: -(P/E Ratio of industry) X (EPS of York) $20.98/$141.4M -Market Price$19.90/$136.8M
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Recommendation: HOLD ● Valuation was conservative ● Below both market indicators ● “Safe” investment ● Impacts of capital expenditures ● Diversification of Portfolio
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Questions?
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