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Category: Stock Market and Chesapeake Utilities
Date: 10 November 2019 Stock Price: $88.02 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of Chesapeake Utilities, a company active in the distribution and transmission of natural gas and electricity generation and distribution as well as other related business activities
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About Chesapeake Utilities
Chesapeake Utilities is a diversified energy company engaged in natural gas distribution and transmission; electricity generation and distribution; propane gas distribution; and other businesses.
Financial overview of Chesapeake's 3rd quarter 2019 earnings report
The data below refers to the latest quarter unless specified otherwise:
- Total operating revenues: $96.626 million (down from $93.400 million for the same quarter of the previous year)
- Total operating expenses: $78.262 million (down from $80.521 million for the same quarter of the previous year)
- Net income: $5.621 million (up from $5.538 million for the same quarter of the previous year)
- Diluted earnings per common share $0.34 (unchanged from $0.34 for the same quarter of the previous year)
- PE ratio of Chesapeake Utilities: 25.5
- Dividend declared: $0.405
- Dividend yield of Chesapeake Utilities: 1.84%
- Diluted number of shares outstanding: 16.453 million (up from 16.428 million for the same quarter of the previous year)
- Cash and cash equivalents $ 4.320 million
- Cash and cash equivalents per share: $0.26
- Cash and cash equivalents makes up 0.29% of Chesapeake's current market capital
- Cash and cash equivalents makes up 0.25% of Chesapeake's total assets
- Accounts receivable, net: $34.504 million
- Accounts receivable makes up 2% of Chesapeake Utilities total assets
- Total shareholders’ equity in Chesapeake Utilities: $544.711 million
- Total shareholders equity per share: $33.10
- Chesapeake Utilities is trading at 2.65 times its stockholders equity which is within the expected range of between 2 and 4 time that most firms tend to trade at.
Chesapeake's management commentary on their 3rd quarter 2019 earnings report
DOVER, Del., Nov. 7, 2019 /PRNewswire/ -- Chesapeake Utilities Corporation (NYSE: CPK) ("Chesapeake Utilities" or the "Company") today announced third quarter financial results. The Company's net income for the quarter ended September 30, 2019 was $5.6 million, compared to $5.5 million for the same quarter of 2018. Consolidated earnings per share ("EPS") for both quarters ended September 30, 2019 and 2018 was $0.34 per share. Net income for the nine months ended September 30, 2019 was $42.6 million, or $2.59 per share, compared to $38.8 million, or $2.36 per share, for the same period in 2018. On October 9, 2019, the Company announced its exit from the natural gas marketing business through the sale of the majority of the assets of Peninsula Energy Services Company, Inc. (PESCO), the Company's natural gas marketing subsidiary. As a result of this decision and announcement, PESCO's results for all periods presented have been separately reported as discontinued operations and its assets and liabilities have been reclassified as held for sale. Additional details on the transactions to sell PESCO's assets and contracts are included on page 8 of this press release.
"For the first nine months of 2019, we have delivered strong financial performance largely driven by new pipeline expansions, organic growth, key regulatory initiatives and contributions from the Marlin Gas Transport and Ohl acquisitions," stated Jeffrey Householder, President and Chief Executive Officer of Chesapeake Utilities Corporation. "As previously disclosed, as part of our ongoing strategic planning process, we decided to exit the natural gas marketing business and announced the sale of the PESCO assets. These actions will improve our earnings outlook, reduce the volatility of future earnings and recover our investment in the business. While the exit of any business is never easy, the same conviction, drive and determination to do what is right for the Company and our constituents guided our decision and remains at the forefront of each and every employee. I am proud of our employees who are driving the growth of the Company in so many different ways."
Expansions
2017 Eastern Shore System Expansion
Eastern Shore has completed the construction of a system expansion project that increased its capacity by 26 percent. The project generated $1.3 million and $6.6 million in incremental gross margin during the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The project is expected to produce gross margin of approximately $16.2 million in 2019; $15.8 million annually from 2020 through 2022 and $13.2 million annually thereafter based on current customer capacity commitments.
Northwest Florida Expansion
In May 2018, Peninsula Pipeline completed construction of transmission lines, and our Florida natural gas division completed construction of lateral distribution lines, to serve customers in Northwest Florida. The project generated incremental gross margin of $2.1 million for the nine months ended September 30, 2019, compared to the same periods in 2018. The estimated annual gross margin from this project is $6.5 million for 2019 and beyond, with the opportunity for additional margin as the remaining capacity is sold. Western Palm Beach County, Florida Expansion Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to the Company's distribution system in West Palm Beach, Florida. The first phase of this project was placed into service in December 2018 and generated $0.7 million and $1.1 million in additional gross margin for the three and nine months ended September 30, 2019, respectively. The Company expects to complete the remainder of the project in phases through early 2020, and estimates that it will generate gross margin of $2.3 million in 2019, $5.0 million in 2020 and $5.2 million annually thereafter.
Del-Mar Energy Pathway
In September 2018, Eastern Shore filed for FERC authorization to construct the Del-Mar Energy Pathway project to provide an additional 14,300 dekatherms per day of capacity to four customers. The project will provide additional natural gas transmission pipeline infrastructure in eastern Sussex County, Delaware, and it will represent the first extension of Eastern Shore's pipeline system into Somerset County, Maryland. Interim services in advance of this project generated $0.2 million and $0.5 million for the three and nine months ended September 30, 2019, respectively. The estimated annual gross margin from this project is approximately $0.7 million in 2019, $3.0 million in 2020, $4.1 million in 2021 and $5.1 million annually thereafter. Eastern Shore anticipates that this project will be fully in-service by the beginning of the fourth quarter of 2021, contingent upon FERC issuing authorization for the project in the fourth quarter of 2019.
Auburndale
In August 2019, the Florida PSC approved Peninsula Pipeline's Transportation Service Agreement with the Florida Division of Chesapeake Utilities. Peninsula Pipeline will purchase existing pipeline owned by the Florida Division of Chesapeake Utilities and Calpine and construct pipeline facilities in Polk County, Florida, increasing both delivery capacity and introducing a secondary source of natural gas for the Company's distribution system. Peninsula Pipeline generated gross margin of $0.1 million in the three and nine months ended September 30, 2019 from this project. This project is expected to generate $0.3 million in 2019 and $0.7 million annually thereafter.
Callahan Intrastate Pipeline
In May 2018, Peninsula Pipeline announced a plan to construct a jointly owned intrastate transmission pipeline in Nassau County, Florida with Seacoast Gas Transmission. The 26-mile pipeline, having an initial capacity of 148,000 dekatherms per day, will serve growing demand in both Nassau and Duval counties, Florida. The project is expected to be placed in-service during the third quarter of 2020 and is expected to generate gross margin of $3.2 million in 2020 and $6.4 million annually thereafter.
Guernsey Power
Station In December 2017, Guernsey Power Station, LLC, ("Guernsey Power Station") and a Chesapeake Utilities affiliate, Aspire Energy Express, LLC, ("Aspire Energy Express") entered into a precedent firm transportation capacity agreement whereby Guernsey Power Station will construct a power generation facility and Aspire Energy Express will provide natural gas transportation service to this facility. Aspire Energy Express will construct gas transmission facilities connecting to a third party natural gas supplier to provide the firm transportation service to the power generation facility. The Aspire Energy Express facilities are expected to be placed in service during the first quarter of 2021. This project is expected to produce gross margin of approximately $1.4 million annually once placed into service in 2021.
Acquisitions
Marlin Gas Services
In December 2018, the Company acquired certain operating assets of Marlin Gas Transport, a supplier of mobile compressed natural gas distribution and pipeline solutions, and created Marlin Gas Services, a new subsidiary which offers compressed natural gas solutions to supply interruption scenarios and provides other unique applications where pipeline supplies are unavailable or inadequate to meet customer requirements. Marlin Gas Services generated $1.0 million and $4.4 million of gross margin for the three and nine months ended September 30, 2019, respectively. The Company estimates that Marlin Gas Services will generate gross margin of approximately $5.5 million in 2019 and $6.4 million in 2020, and we expect gross margin to continue to grow beyond 2020 as Marlin Gas Services continues to actively expand the territories it serves as well as leverages its patented technology to potentially serve liquefied natural gas transportation needs.
Ohl Propane Acquisition
In December 2018, Sharp Energy, Inc.'s ("Sharp") acquired certain propane customers and operating assets of Ohl. Located between two of Sharp's existing districts, Ohl provided propane distribution service to approximately 2,500 residential and commercial customers in Pennsylvania. The customers and assets acquired from Ohl have been assimilated into Sharp. The operations acquired from Ohl generated $0.1 million and $0.7 million of incremental gross margin for the three and nine months ended September 30, 2019, respectively. The Company estimates that this acquisition will generate additional gross margin of approximately $1.2 million for Sharp in 2019, with the potential for additional growth in future years.
Expansions
2017 Eastern Shore System Expansion
Eastern Shore has completed the construction of a system expansion project that increased its capacity by 26 percent. The project generated $1.3 million and $6.6 million in incremental gross margin during the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The project is expected to produce gross margin of approximately $16.2 million in 2019; $15.8 million annually from 2020 through 2022 and $13.2 million annually thereafter based on current customer capacity commitments.
Northwest Florida Expansion
In May 2018, Peninsula Pipeline completed construction of transmission lines, and our Florida natural gas division completed construction of lateral distribution lines, to serve customers in Northwest Florida. The project generated incremental gross margin of $2.1 million for the nine months ended September 30, 2019, compared to the same periods in 2018. The estimated annual gross margin from this project is $6.5 million for 2019 and beyond, with the opportunity for additional margin as the remaining capacity is sold. Western Palm Beach County, Florida Expansion Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to the Company's distribution system in West Palm Beach, Florida. The first phase of this project was placed into service in December 2018 and generated $0.7 million and $1.1 million in additional gross margin for the three and nine months ended September 30, 2019, respectively. The Company expects to complete the remainder of the project in phases through early 2020, and estimates that it will generate gross margin of $2.3 million in 2019, $5.0 million in 2020 and $5.2 million annually thereafter.
Del-Mar Energy Pathway
In September 2018, Eastern Shore filed for FERC authorization to construct the Del-Mar Energy Pathway project to provide an additional 14,300 dekatherms per day of capacity to four customers. The project will provide additional natural gas transmission pipeline infrastructure in eastern Sussex County, Delaware, and it will represent the first extension of Eastern Shore's pipeline system into Somerset County, Maryland. Interim services in advance of this project generated $0.2 million and $0.5 million for the three and nine months ended September 30, 2019, respectively. The estimated annual gross margin from this project is approximately $0.7 million in 2019, $3.0 million in 2020, $4.1 million in 2021 and $5.1 million annually thereafter. Eastern Shore anticipates that this project will be fully in-service by the beginning of the fourth quarter of 2021, contingent upon FERC issuing authorization for the project in the fourth quarter of 2019.
Auburndale
In August 2019, the Florida PSC approved Peninsula Pipeline's Transportation Service Agreement with the Florida Division of Chesapeake Utilities. Peninsula Pipeline will purchase existing pipeline owned by the Florida Division of Chesapeake Utilities and Calpine and construct pipeline facilities in Polk County, Florida, increasing both delivery capacity and introducing a secondary source of natural gas for the Company's distribution system. Peninsula Pipeline generated gross margin of $0.1 million in the three and nine months ended September 30, 2019 from this project. This project is expected to generate $0.3 million in 2019 and $0.7 million annually thereafter.
Callahan Intrastate Pipeline
In May 2018, Peninsula Pipeline announced a plan to construct a jointly owned intrastate transmission pipeline in Nassau County, Florida with Seacoast Gas Transmission. The 26-mile pipeline, having an initial capacity of 148,000 dekatherms per day, will serve growing demand in both Nassau and Duval counties, Florida. The project is expected to be placed in-service during the third quarter of 2020 and is expected to generate gross margin of $3.2 million in 2020 and $6.4 million annually thereafter.
Guernsey Power
Station In December 2017, Guernsey Power Station, LLC, ("Guernsey Power Station") and a Chesapeake Utilities affiliate, Aspire Energy Express, LLC, ("Aspire Energy Express") entered into a precedent firm transportation capacity agreement whereby Guernsey Power Station will construct a power generation facility and Aspire Energy Express will provide natural gas transportation service to this facility. Aspire Energy Express will construct gas transmission facilities connecting to a third party natural gas supplier to provide the firm transportation service to the power generation facility. The Aspire Energy Express facilities are expected to be placed in service during the first quarter of 2021. This project is expected to produce gross margin of approximately $1.4 million annually once placed into service in 2021.
Acquisitions
Marlin Gas Services
In December 2018, the Company acquired certain operating assets of Marlin Gas Transport, a supplier of mobile compressed natural gas distribution and pipeline solutions, and created Marlin Gas Services, a new subsidiary which offers compressed natural gas solutions to supply interruption scenarios and provides other unique applications where pipeline supplies are unavailable or inadequate to meet customer requirements. Marlin Gas Services generated $1.0 million and $4.4 million of gross margin for the three and nine months ended September 30, 2019, respectively. The Company estimates that Marlin Gas Services will generate gross margin of approximately $5.5 million in 2019 and $6.4 million in 2020, and we expect gross margin to continue to grow beyond 2020 as Marlin Gas Services continues to actively expand the territories it serves as well as leverages its patented technology to potentially serve liquefied natural gas transportation needs.
Ohl Propane Acquisition
In December 2018, Sharp Energy, Inc.'s ("Sharp") acquired certain propane customers and operating assets of Ohl. Located between two of Sharp's existing districts, Ohl provided propane distribution service to approximately 2,500 residential and commercial customers in Pennsylvania. The customers and assets acquired from Ohl have been assimilated into Sharp. The operations acquired from Ohl generated $0.1 million and $0.7 million of incremental gross margin for the three and nine months ended September 30, 2019, respectively. The Company estimates that this acquisition will generate additional gross margin of approximately $1.2 million for Sharp in 2019, with the potential for additional growth in future years.
Chesapeake Utilities (NYSE: CPK) stock price history
The image below, obtained from Google shows the stock price history of Chesapeake Utilities over the last 5 years. And its been a pretty good time for Chesapeake Utilities stockholders. 5 years ago the stock of Chesapeake Utilities was trading at around $45.50 a stock and its currently trading at $88.02. That's a very healthy return of 93.4% provided to Chesapeake Utilities stockholders over the last 5 years.
The stock of Chesapeake is trading at pretty close to the midpoint between its 52 week low and 52 week high, which to us is a indication that the short term sentiment and momentum of Chesapeake's stock is neutral.
The stock of Chesapeake is trading at pretty close to the midpoint between its 52 week low and 52 week high, which to us is a indication that the short term sentiment and momentum of Chesapeake's stock is neutral.
Recent coverage of Chesapeake Utilities
The extract below covers the latest dividend announcement of Chesapeake Utilities as obtained from TheStreet.com
DOVER, Del., Nov. 6, 2019 /PRNewswire/ -- Today, the Board of Directors of Chesapeake Utilities Corporation (NYSE: CPK) declared a quarterly cash dividend of $0.405 per share on the Company's common stock. The $0.405 per share dividend will be paid on January 6, 2020 to all shareholders of record at the close of business on December 16, 2019. Chesapeake has paid dividends to its shareholders without interruption for 59 years. During those 59 years, Chesapeake has either maintained or increased its annualized dividend
DOVER, Del., Nov. 6, 2019 /PRNewswire/ -- Today, the Board of Directors of Chesapeake Utilities Corporation (NYSE: CPK) declared a quarterly cash dividend of $0.405 per share on the Company's common stock. The $0.405 per share dividend will be paid on January 6, 2020 to all shareholders of record at the close of business on December 16, 2019. Chesapeake has paid dividends to its shareholders without interruption for 59 years. During those 59 years, Chesapeake has either maintained or increased its annualized dividend
Chesapeake Utilities (NYSE: CPK) latest stock valuation
Based on Chesapeake Utilities latest earnings report what do we value the group's stock at? Based on reported earnings our valuation models provides a target (full value) price for Chesapeake Utilities at $73.70. We therefore believe the stock of Chesapeake Utilities is overvalued.
We usually recommend that long term fundamental or value investors enter a stock at least 10% below our target (full value) price which in this case is $73.70. We therefore believe a good entry point into Chesapeake Utilities stock is at $66.30 or below. We expect the stock of Chesapeake Utilities to pull back from its current levels to levels closer to our target (full value) price in coming weeks and months.
We usually recommend that long term fundamental or value investors enter a stock at least 10% below our target (full value) price which in this case is $73.70. We therefore believe a good entry point into Chesapeake Utilities stock is at $66.30 or below. We expect the stock of Chesapeake Utilities to pull back from its current levels to levels closer to our target (full value) price in coming weeks and months.
Next earnings release of Chesapeake Utilities
It is expected that Chesapeake Utilities' 4th quarter 2019 earnings report will be released towards the middle of February 2020