York Water: Still A 'No' For Now, New Rate Case Is Here

vitapix

Dear readers/subscribers,

York Water (NASDAQ:YORW) remains nan aforesaid institution that I've been reviewing for complete a year. The upside is constricted astatine higher valuations, and moreover astatine little valuations, you're seeing comparatively debased double-digits annually. What you get is nan benignant of information that has existed longer than astir nations successful their existent state.

York Water has a longer history and a dividend than astir central-European, African, Asian, aliases different nations successful nan existent configurations - and location aren't galore companies that tin declare this. That successful itself has value. I usage akin arguments to showcase nan upside aliases information for companies for illustration LVMH (OTCPK:LVMUY), and immoderate of their brands which are complete half a millennia aged astatine this point.

So, I'm nary alien aliases underestimating that benignant of blimpish fundamental.

But, it doesn't nullify that we're wanting a good valuation earlier investing our hard-earned money.

Updating connected York Water (and news) for 2023

So, York Water is still nan aforesaid play I've been penning astir for complete a twelvemonth now. It's nan longest dividend-paying banal nether a definite group of circumstances/rules. It's neither ample nor its marketplace headdress small. Under astir circumstances, it wouldn't drawback nan oculus of astir investors - it'd beryllium excessively small, and excessively uninteresting.

However, nan dividend history isn't everything that YORW has going for it, of course. It's besides a h2o business - and h2o business investments person nan aforesaid benignant of basal safeties and imaginable positives arsenic different rate-based companies - specified arsenic discarded management/recycling, electricity/power and heat. The statement present is you speech maturation potential, of which location is very small successful these companies, for nan information recovered successful slow but inexorable maturation successful income, hopefully successful statement with, aliases supra nan complaint of wide inflation.

YORW's statement of business does not make it immune to nan existent ostentation and wide costs increases that we're presently seeing. The caller complaint cases let for nan institution to summation for 75,000 h2o and wastewater customers crossed 3 halfway counties. Now, moreover pinch these accrued rates, nan institution is 1 of nan lower-cost utilities crossed nan nation. The latest complaint lawsuit is expected to summation nan mean measure by astir $6.5/share to conscionable supra $53, which for 1 alteration is still rather substantial. It's a 22 cent per time increase, which brings nan per-gallon costs to astir a penny each.

Last clip nan institution accrued its rates was successful 2019.

The costs will beryllium used, among different things, successful nan pursuing ways:

• Retrofitting existing infrastructure, including classical relining, reinforcement and replacing of up to 4.5% of nan h2o mains, to some summation ratio and little interruptions successful service.
• Design upgrades to nan Lake Williams reservoir to get different 100 years of work retired of nan asset.
• Standard attraction and replacing work lines, meters, hydrants, etc.
• Replacement of still-existing lead work lines (at nary costs to customer).
• A caller wastewater curen works owed to accrued request from a increasing customer base.
• Investments successful beingness and cyber-based information to reside nan caller group of threats.

Now, location are immoderate specifics to beryllium alert of. Water rates are group by nan company's azygous complaint building - wastewater rates are not. The company's wastewater rates are alternatively based upon what circumstantial strategy is successful place, and immoderate of those increases are higher owed to investments and debased humanities rates - nan mean wastewater measure is up importantly much than nan mean h2o bill, by astir $26 per month.

So, arsenic you tin see, customers of YORW are successful nary measurement immune to what nan institution is seeing here.

Other than nan caller complaint case, nan institution reasonably precocious completed nan M&A of nan SYC Wastewater Treatment works and related collections systems successful New York County - arsenic good arsenic a h2o strategy successful Franklin. So erstwhile I opportunity that there's very debased growth, it's debased but sometimes there's some, because these inorganic additions evidently lend to earnings. However, specified M&A's successful this business conception are highly agelong processes, and nan number of customers are sometimes highly constricted - arsenic evidenced by nan caller M&A of nan Albright Estates, mobile homes, which adhd a full of 60 residential h2o customers successful nan area, and nan Scott Water institution successful Franklin arsenic well, which added a expansive full of 25 customers.

So, maturation is slow, and this is expressed successful nan existent group of forecasts for nan coming fewer years. "Slow but steady" is nan mantra that's rather suitable here, if you return a look to astatine slightest nan 2024E, which is arsenic acold arsenic this company's forecast goes. Remember nan company's size - it's really rather a wonderment that we person arsenic overmuch arsenic this, fixed that astir company's this broadside often don't moreover person analysts following.

YORW Forecasts (TIKR.com)

Beyond that, S&P Global analysts don't moreover return a stab astatine nan company's dividend forecasts. We person immoderate from FactSet, and these telephone for nan dividends to fundamentally support increasing successful statement here. As it stands, nan institution seems rather group and clear to support increasing here.

This institution remains 1 of those businesses that useful pinch not a 5 twelvemonth aliases moreover a 10-15 twelvemonth imagination - it useful successful nan centuries. This tin beryllium seen erstwhile looking astatine immoderate of nan latest spot purchases YORW engages in, including a very caller 1 successful December, wherever nan institution acquired 54 strategical acres adjacent to a halfway filtration plant. What nan institution says is reasonably self-explanatory successful position of really executives look to deliberation here.

"Just arsenic our predecessors had nan foresight and imagination to found York Water's curen useful connected nan elevated slope overlooking nan City of York, to unafraid nan precocious crushed and use from gravity, we put for nan needs of our customers not simply today, but for 30, 50, aliases 100 years from now."

(Source: YORW President, York Water IR)

The institution has owned nan area astir and successful Reservoir parkland for complete 140 years, and its purchases are made pinch precisely that benignant of thinking.

York Water is nan benignant of finance that doesn't "do anything" successful position of awesome risks. It's water, and it's not going anywhere. At nan correct price, it tin springiness double digits, and astatine little prices, it goes down to azygous digits.

Let's look astatine wherever we are going into 2023.

York Water's 2023 valuation isn't bully capable for investing

Since precocious 2015, this institution has seen immoderate important premiumization of its valuation. While it's not arsenic bad now arsenic it was aft COVID-19 erstwhile YORW traded astatine supra 40x P/E - a aggregate I will ne'er pay, nonetheless, it's still supra wherever I'd beryllium comfortable investing successful nan business.

I person stated pinch clarity successful erstwhile articles that nan clip erstwhile nan institution becomes costly is erstwhile it goes supra a $44/share PT. For nan coming years, fixed accrued earnings, I mightiness bump this to $45, which would move this existent value of $44.77 hardly undervalued/close to adjacent worth for nan company, but fixed that we don't person nonstop clarity for this yet, I'm sticking to beneath $44/share for nan clip being.

Again though, moreover erstwhile YORW goes beneath $44, it doesn't moreover output 2% it has an inverse P/E EPS output of little than 3.5%, and it presently trades astatine 32x P/E blended. Yes, it whitethorn beryllium A- rated, but it's besides little than a $1B successful marketplace headdress - little than $700M arsenic a matter of fact. The normalized P/E ratio that we spot estimated present is 37.52x, but this is based connected a affirmative group of historicals that I don't position arsenic being rational, fixed nan comparatively humble gait of maturation astatine astir 6%.

If we forecast astatine 32-37x P/E, that gives america nary little than a 9-13% annualized Upside, but there's excessively overmuch exuberance to those targets for me. I want that benignant of upside connected 30-32x, which we don't have.

There is still only 1 expert pursuing YORW astatine S&P Global - and he is arsenic insistent 10-30% supra nan company's stock value arsenic he has ever been. The target for that expert has now gone up to $59/share, which would connote a 31.8% upside astatine today's price.

I do not work together pinch this value target.

In position of each applicable peer, immoderate of which are much than 15x nan size of YORW, nan institution trades astatine an excessive premium successful position of revenues, sales, and earnings. Even American States Water (AWR) doesn't waste and acquisition arsenic precocious arsenic that, nor does California Water (CWT). There are world peers arsenic well, and they don't travel adjacent to this.

Because of this, I position this arsenic an asymmetric play - successful nan incorrect consciousness of nan usually affirmative word. I, unfortunately, judge that astatine this price, you're apt to spot YORW underperform, arsenic nan institution has since my past article covering it. YORW besides isn't a bully action play, not present and not arsenic I spot it.

That leaves maine pinch nan pursuing thesis for 2023 for YORW here.

Thesis

My thesis for York Water Company is nan following:

• This is nan oldest consistently dividend-paying institution successful existence. It's trading astatine a important premium but whitethorn good merit immoderate of this premium.
• My target for YORW is simply a 30-33X P/E, accepting nan 10-year P/E average, giving america a PT of $44/share - and that's nan highest I'm consenting to spell here, nary matter what.
• YORW has gone excessively acold and it's not going down - I'm "HOLD" successful here, and I see it amended to hold to driblet earlier buying more. Check retired European and different US peers to spot if they're much to your liking.

Remember, I'm each about:

• Buying undervalued - moreover if that undervaluation is flimsy and not mind-numbingly monolithic - companies astatine a discount, allowing them to normalize complete clip and harvesting superior gains and dividends successful nan meantime.
• If nan institution goes good beyond normalization and goes into overvaluation, I harvest gains and rotate my position into different undervalued stocks, repeating #1.
• If nan institution doesn't spell into overvaluation but hovers wrong a adjacent value, aliases goes backmost down to undervaluation, I bargain much arsenic clip allows.
• I reinvest proceeds from dividends, savings from work, aliases different rate inflows arsenic specified successful #1.

Here are my criteria and really nan institution fulfills them (italicized).

• This institution is wide qualitative.
• This institution is fundamentally safe/conservative & well-run.
• This institution pays a well-covered dividend.
• This institution is presently cheap.
• This institution has a realistic, bully upside based connected net maturation aliases aggregate description /reversion.

As you tin see, nan institution still fulfills only 3 retired of 5 criteria present - making it a "HOLD" to me.