Connecticut
Water Service, Inc. (CTWS, $52.29): “CTWS Springs a Leak”
By:
Andrew Plank, AIM Student at Marquette University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
· Connecticut
Water Service, Inc. (NASDAQ, CTWS) is a utility company that operates,
manages, and regulates water for consumers primarily on the eastern seaboard of
the United States. Along with managing
water supply, Connecticut Water Service Inc. also operates wastewater
facilities and real estate. The firm was
founded in 1974 and is headquartered in Clinton, CT.
·
Connecticut Water Service completed
acquisition of Heritage Village Water for $20.7 million.
·
Connecticut Water Service Board of
Directors declared dividends and approved $66.2 million spending plan for 2018.
·
Rockville Water Treatment Facility was
completed and has begun serving 85,000 people.
·
Change of leadership occurred with the
resignation of Eric Thornburg as President and CEO, while David Benoit was
unanimously appointed to serve as interim President and CEO.
Key
Points: Moving into 2018 Connecticut Water Supply expanded their
spending plan by 18%. Part of that plan
will go to the acquisition of Heritage Village Water which was not included in
the 2017 spending plan. Connecticut
Water approximates 35% of their capital will go towards the replacement of
piping and other projects that will bolster their infrastructure. This firm strongly values the health of the
environment and has pledged money to protect their facilities from water
leakage, especially from their water treatment plants.
Connecticut Water Supply continues to
look for growth opportunities which was reflected in their increased spending
plan, although it should be noted that a portion of that money will be directed
towards their acquisitions from 2017.
With the completion of their new Rockwell Facility, 85,000 people will
be served public drinking water from their plant.
Eric Thornburg resigned as CEO of
Connecticut Water Supply on seemingly good terms as he pursued a similar role
with SJW group in San Jose, CA. David
Benoit was unanimously elected as the interim CEO and has served 21 years as
the CFO of Connecticut Water Supply.
Benoit has been credited with the financial success of the company and
his movement to CEO was seen in a positive light.
A $.2975 quarterly dividend was declared
payable on December 15th of 2017.
The dividend continued unchanged from the previous quarter and finalized
the year with an annual dividend of $1.19 per share. On November 9th, 2017 the annual
dividend yield was 1.9%.
What
has the stock done lately?
On November 29th, 2017
Connecticut Water Supply hit a high of $63.55.
Since the price high, Connecticut Water Supply’s stock price has dropped
17.4% over the past two months. The
water utility industry as a whole has been struggling the past couple of months
as seen on figure 1, with the Russel 2000 having an approximate 20% drop over
the same time period. CTWS has had
fairly large price fluctuations over the past six months but has never left the
range of low $60s to low $50s. Even with
the completion of major projects CTWS still has not found the major drivers
required to push it out of the price bounds that it currently finds itself in.
Past
Year Performance: CTWS has dropped in price by 2% over
the past year. While that may seem like
an insignificant drop, CTWS has undergone extreme volatility moving to a high
of $63.55 and a low of $52.13. Its
current price is nearly at the lowest trading price reached by the stock over
the past year and could be a good buying opportunity. The volatility of CTWS can be tied to
interest rates. The utility sector as a
whole seems to be more reliant on the current interest rates and patterns can
be seen between the sector and bond yields.
As bond yields rally, the utility sector falls. The attractiveness of dividend paying
utilities have been losing their luster especially when banks have been moving
the sector as a whole into a category of under-performance.
Source:
FactSet
My
Takeaway
Connecticut Water Supply pledging an 18% increase in
spending for the next year is a positive sign that they are continuing to
search for ways to grow. CTWS stated
that they were going to be spending 35% of their capital in 2018 on the
bolstering of their infrastructure. This
company comes across as extremely careful, which is important in an industry
where people count on the water being clean when it is provided to them. The issue with CTWS lies in its inability to
find a strong driver. While utility companies
typically rely on their dividends to attract investors, this current market
climate with interest rates looking to rally spells out trouble for this
industry. I worry that if CTWS is unable
to climb out of this trench, they could spend a very long time trapped at a
lower stock price.
