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Category: Stock Market and Consolidated Water
Date: 22 September 2019 Stock Price: $15.66 We take a look at the 2nd quarter earnings release of their 2019 fiscal year of Consolidated Water a company specialising in seawater reverse osmosis desalination plants.
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About Consolidated Water
Consolidated Water Co. Ltd. (the “Company”, or "CWCO") designs, builds, operates, and in some cases finances seawater reverse osmosis (SWRO) desalination plants and water distribution systems in several Caribbean countries, where the supply of drinking water is scarce and the use of SWRO is economically feasible. The Company was established in 1973 as a private water utility in Grand Cayman, the largest island in the Cayman Islands group, and obtained its first public utility license in the Cayman Islands in 1979.
We endeavor to provide water services in areas where the supply of potable water is scarce. We have focused on such areas as our principal market because they possess characteristics that make them attractive for our business. Such characteristics include, but are not limited to:
We endeavor to provide water services in areas where the supply of potable water is scarce. We have focused on such areas as our principal market because they possess characteristics that make them attractive for our business. Such characteristics include, but are not limited to:
- Little or no naturally occurring fresh water
- Growing population
- High tourism levels
Overview Consolidated Water's latest earnings report
The numbers we are interested in (for the quarter):
- Revenue: $18.305 million (up from $15.064 billion from the same quarter of the previous year)
- Revenue increased by 21.5% over the last 12 months
- Cost of revenues: $10.752 million (up from $8.879 million for the same quarter of the previous year)
- Cost of revenues increased by 21% over the last 12 months
- Net earnings: $2.476 million (up from $2.188 million for the same quarter of the previous year)
- Diluted income per share: $0.16 (up from $0.14 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 15.130 million (up from 15.117 million for the same quarter of the previous year)
- Cash and cash equivalents: $41.878 million
- Cash and cash equivalents per share: $2.76
- Cash and cash equivalents makes up 17.67 % of Consolidated Water's market capital
- Cash and cash equivalents makes up 23% of Consolidated Water's total assets
- Accounts receivable: $20.190 million
- Accounts receivable makes up 11.1% of Consolidated Water's total assets
- Stockholders equity of Consolidated Water: $171.1 million
- Stockholders equity per share: $11.31
- Consolidated Water is trading at 1.4 times its stockholders equity per share. It is trading outside the expected range as most firms tend to trade at levels between 2 and 4 times its stated stockholders equity per share.
Consolidated Water's management commentary on the results and earnings guidance
GEORGE TOWN, Cayman Islands, Aug. 12, 2019 /PRNewswire/ -- Consolidated Water Co. Ltd. (Nasdaq Global Select Market: CWCO), a leading developer and operator of seawater desalination plants, reported results for the quarter ended June 30, 2019
"In Q2, we realized double-digit revenue and gross profit growth that was driven primarily by increased production activity in our manufacturing business," commented Consolidated Water CEO, Rick McTaggart. "The growth in manufacturing was due to a renewed focus on industrial sales, strong execution by our sales team and increasing customer demand for our specialized products.
"Our retail revenue growth was in part attributed to the fact that it has been a very dry year so far, with rainfall in the second quarter down 76% compared to last year. For the first half of 2019, rainfall in our Cayman Islands service area was down 55% compared with rainfall in the first half of 2018 and was also 55% lower than the 30-year average.
"The prospects for the manufacturing segment continue to look favorable, given that we have specialized manufacturing capabilities and experience relating to markets with relatively high barriers to entry. In these markets, we qualify for projects that require unique quality controls and certification. We also fabricate water treatment equipment for a diverse number of industries involved in wastewater treatment infrastructure, and we believe the numerous municipal utilities in need of improvements in this area can also drive growth in our business.
"In anticipation of further manufacturing growth, we are expanding our production facility, with this expected to be completed within the next year. This project is being led by our new VP of Manufacturing, whose knowledge and experience will play an important role as we grow this business. "With respect to our Rosarito project, we had two major positive developments earlier this year regarding legislative approval and funding that has allowed us to proceed to the next several important steps before we begin the construction phase. These steps include securing the major portions of the project's required debt financing and aqueduct rights of way.
"There remain many water-scarce countries in the Caribbean and other markets where we believe we can have a positive impact on their development by providing essential fresh water supplies. So, we are continuing to explore development opportunities where we can support the growth of regional economies and improve the quality of life in local communities. "We plan to take advantage of the ample liquidity on our balance sheet to expand into new markets and complementary product lines, diversify revenue streams and widen our geographic footprint. Our strong performance in Q2 reflects the tremendous opportunities ahead."
Outlook
Based on committed purchase orders, Consolidated Water continues to expect that the performance of its manufacturing segment for the 2019 fiscal year to exceed its performance for 2018. The company traditionally sells more water on Grand Cayman during the first half of the calendar year when the number of visitors is typically greater and local rainfall is less as compared to the back half of the year.
"In Q2, we realized double-digit revenue and gross profit growth that was driven primarily by increased production activity in our manufacturing business," commented Consolidated Water CEO, Rick McTaggart. "The growth in manufacturing was due to a renewed focus on industrial sales, strong execution by our sales team and increasing customer demand for our specialized products.
"Our retail revenue growth was in part attributed to the fact that it has been a very dry year so far, with rainfall in the second quarter down 76% compared to last year. For the first half of 2019, rainfall in our Cayman Islands service area was down 55% compared with rainfall in the first half of 2018 and was also 55% lower than the 30-year average.
"The prospects for the manufacturing segment continue to look favorable, given that we have specialized manufacturing capabilities and experience relating to markets with relatively high barriers to entry. In these markets, we qualify for projects that require unique quality controls and certification. We also fabricate water treatment equipment for a diverse number of industries involved in wastewater treatment infrastructure, and we believe the numerous municipal utilities in need of improvements in this area can also drive growth in our business.
"In anticipation of further manufacturing growth, we are expanding our production facility, with this expected to be completed within the next year. This project is being led by our new VP of Manufacturing, whose knowledge and experience will play an important role as we grow this business. "With respect to our Rosarito project, we had two major positive developments earlier this year regarding legislative approval and funding that has allowed us to proceed to the next several important steps before we begin the construction phase. These steps include securing the major portions of the project's required debt financing and aqueduct rights of way.
"There remain many water-scarce countries in the Caribbean and other markets where we believe we can have a positive impact on their development by providing essential fresh water supplies. So, we are continuing to explore development opportunities where we can support the growth of regional economies and improve the quality of life in local communities. "We plan to take advantage of the ample liquidity on our balance sheet to expand into new markets and complementary product lines, diversify revenue streams and widen our geographic footprint. Our strong performance in Q2 reflects the tremendous opportunities ahead."
Outlook
Based on committed purchase orders, Consolidated Water continues to expect that the performance of its manufacturing segment for the 2019 fiscal year to exceed its performance for 2018. The company traditionally sells more water on Grand Cayman during the first half of the calendar year when the number of visitors is typically greater and local rainfall is less as compared to the back half of the year.
Consolidated Water (NASDAQ: CWCO) stock price history
The image below, obtained from Google, shows the stock price history of Consolidated Water (NASDAQ: CWCO) since its listing. And it's been a good time for Consolidated Water stockholders. 5 years ago the stock of Consolidated Water was trading at $12 a stock, and its currently it's trading at $15.66 Thats s return of 30.5% offered over the last 5 years. The stock is also trading at a lot closer to its 52 week high of $15.73 than it is to its 52 week low of $10.76 which to us is a clear indication that the short term sentiment and momentum of the stock is overwhelmingly positive.
Consolidated Water (NASDAQ: CWCO) latest stock valuation
So based on the earnings report of Consolidated Water (NASDAQ: CWCO) and the latest earnings guidance provided what do we value Consolidated Water (CWCO) stock at? Based on their latest earnings and the outlook provided by the group our target (full value) price for Consolidated Water at $11.80 a stock. We therefore believe the stock of Consolidated Water is overvalued
We usually suggest long term fundamental and value investors look to enter the stock at least 10% below our target price, which in this case is $11.80. Therefore we believe the a good entry point into the stock is below $10.60. So should the stock drop from its current levels of $15.66 to below $10.60 we believe it will be a good buying opportunity to get into the stock.
We usually suggest long term fundamental and value investors look to enter the stock at least 10% below our target price, which in this case is $11.80. Therefore we believe the a good entry point into the stock is below $10.60. So should the stock drop from its current levels of $15.66 to below $10.60 we believe it will be a good buying opportunity to get into the stock.