Professional Documents
Culture Documents
Agenda
Introduction
Industry Analysis
Financial Analysis
Recommendation
2.
3.
4.
5.
6.
7.
Petroleum:1%
Other Gases:1%
Coal
Hydropower:7%
Natural Gas
Nuclear:
19%
Coal:
37%
Nuclear
Hydropower
Other
Renewables
Natural Gas:
30%
Industry Analysis
Edison Electric Institute (EEI) : Association that
represents U.S investor owned electric companies
EEIs Financial Analysis Group tracks & analyzes a
range of industry financial metrics covering 56 U.S
shareholder owned electric utility firms
Financial Analysis
10000
8000
6000
4000
2000
0
2008
2009
2010
2011
2012
Quarterly Growth
HE
2012 Q4 --2013 Q1
2013 Q2 2013 Q3
-6.44%
1.66%
4.27%
142.86%
20.59%
19.51%
2012 Q4-2013 Q1
2013 Q2 2013 Q3
Revenue %
-14.22%
6.81%
-5.57%
Net income %
-21.94%
7.40%
-94.21%
2012 Q4-2013 Q1
2013 Q2 2013 Q3
20.94%
-18.89%
17.05%
138.53%
-62.31%
31.19%
2012 Q4-2013 Q1
2013 Q2 2013 Q3
Revenue %
-20.25%
19.35%
-19.23%
Net income %
-43.17%
56.10%
-15.47%
Revenue %
Net income %
AEP
EDE
Revenue %
Net income %
NG
Net income %
EPS %
2008-2009
2009-2010
2010-2011
2011-2012
5Y
average
-28.25
15.39
21.66
4.09
5.88
-8.05
39.05
21.39
0.31
10.64
-14.95
32.97
19.01
-1.39
6.63
VS.
National
Grid
2008-2009
2009-2010
2010-2011
2011-2012
5Y
average
36.43
-10.71
2.40
-3.56
9.52
Net income %
-70.46
46.82
55.77
-5.70
7.84
EPS %
-68.64
46.07
13.98
-10.69
2.22
Revenue %
Net income %
EPS %
2008-2009
2009-2010
2010-2011
2011-2012
5Y
average
-28.25
15.39
21.66
4.09
5.88
-8.05
39.05
21.39
0.31
10.64
-14.95
32.97
19.01
-1.39
6.63
VS.
American
Electric Power
2008-2009
2009-2010 2010-2011
2011-2012
5Y
average
Revenue %
-6.59
6.95
4.78
-1.13
2.24
Net income %
-1.45
-10.74
60.30
-35.30
2.94
-13.45
-14.53
58.89
-35.32
-0.90
EPS %
Net income %
EPS %
2008-2009
2009-2010
2010-2011
2011-2012
5Y
average
-28.25
15.39
21.66
4.09
5.88
-8.05
39.05
21.39
0.31
10.64
-14.95
32.97
19.01
-1.39
6.63
VS.
Empire District
Electric
2008-2009
2009-2010
2010-2011
2011-2012
5Y
average
-4.05
8.87
6.58
-3.43
2.59
Net income %
3.96
14.77
15.98
1.29
10.87
EPS %
0.85
-0.85
11.97
0.76
3.9
Revenue %
Ratio Comparison
Based on fiscal year 2012
2012
HE
National
Grid
AEP
EDE
Net Margin
4.11
14.72
8.42
9.99
Current Ratio
1.08
0.90
0.67
1.46
ROA
1.4
4.34
2.36
2.68
ROE
8.87
22.25
8.42
7.89
D/E
0.89
2.22
1.02
0.96
Key Ratios of HE
Dec-08
Dec-09
Dec-10
2.8
3.59
4.26
4.26
4.11
Current Ratio
1.08
0.96
1.09
1.08
1.08
ROA
0.92
0.91
1.26
1.48
1.4
ROE
6.78
5.86
7.76
9.17
8.87
D/E
0.87
0.95
0.92
0.87
0.89
Net Margin
Dec-11 Dec-12
Stock Valuation
CAPM
Risk Free Rate (10 year T-Bill): 3%
Has been growing very fast
Our Beta: .23, Yahoo Finance Beta: .23
Market Required Return (Average Trailing 36
months: 12%
Risk Premium: 9%
Hawaii Electric Expected Return: 5%
WACC
Cost of Debt: 4.35 %
Cost of Equity (CAPM): 5%
Capital Structure: 51.52% Debt, 48.48%
equity
WACC: 4.6%
Growth Rates
All projections are tied to revenue growth
Revenue growth rates have been tapering down
2014
8%
2015
5%
2016
5%
2017-Infinity
3%
FCFF Method
Historic Prices
2010
EBIT(1T)Dep
2011
2012
Projections
2013
2014
2015
2016
2017
Capital
Expenditures $182,125.00 $235,116.00 $325,480.00 $286,141.45 $300,448.52 $315,470.95 $331,244.49 $341,181.83
Change in
Working
Capital
FCF
$160,604.4
$34,154.96
5 $56,092.30 $41,274.64 $66,249.51 $69,561.99 $73,040.09 $83,583.46
Discounted
FCF's
$63,335.59 $66,502.37
$
4,626,187.98
FCFF Continued
Total Corporate Value: $4.88 billion
Market Value of Debt: $1.7 billion
Shares Outstanding: 99.3 million
Intrinsic Value Per Share: $32.04
Current Trading Price: $26.11
FCFE Model
2010
FCF
Increases in
Long Term
Debt
Interest
Expense
lessTax
FCFE
FCFE
Discounted
2011
2012
2013
2014
2015
2016
2017
$34,154.96 $160,604.45
$56,092.30
$41,274.64
$66,249.51
$69,561.99
$73,040.09
$83,583.46
$(24,872.00)
$82,802.00
$(6,338.66)
$70,826.67
$74,368.00
$78,086.40
$49,194.43
$22,200.72 $104,392.89
$36,460.00
$26,828.51
$43,062.18
$45,215.29
$47,476.06
$54,329.25
$58,222.56
$21,644.31
$16,459.12
$25,201.33
$26,361.70
$27,580.03
$31,271.21
$76,552.44
$76,552.44
$
3,030,670.05
Discounted FCFE and FCFE terminal value by the cost of equity, not by
WACC
Discounted Dividend
Model
The annual dividend has stayed at $1.24 for the
past 23 years
We used a growth rate of 0% in the DDM
Comparative Analysis
Hawaii Electric
Industry
16.7
17
Price to Book
1.4
1.2
7.3
7.2
0.69
1.2
PE Ratio (Average)
Price to Sales
Recommendation
FCFF: $32.04
FCFE: $30.06
DDM: $ 24.80
Average: $29.00
Weighted Average: $30
Market Price: $26.01
Recommendation: Buy
Q&A