Cascal: Knock Knock, HOO's There? 24 comments
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It appeals to me when a business operates in multiple countries. It appeals to me when a company innovates a way to make waste (cheap in any market) valuable. It appeals to me when a company has contracts with guaranteed rate increases from national governments. It appeals to me when a company trades at one third the average valation for its industry. Dividends appeal to me.
From the Cascal (HOO) prospectus from their 2008 IPO:
We provide water and wastewater services to our customers in eight countries: the United Kingdom, South Africa, Indonesia, China, Chile, Panama, Mexico and The Philippines. In a typical wastewater project, we collect the wastewater from our customers’ premises, treat the wastewater to meet the required standards and return the treated water to the environment. We provide these services under long-term contracts or licenses that typically give us the exclusive right to provide our services within a defined territory. Our customers are predominantly homes and businesses representing a total population of approximately three million.
I am a big believer in water utilities and don't doubt that investors (those who haven't yet) will realize that, in order for us to exist, so too do these companies. Drinking water is everyone's most precious resource and many governments, currently managing domestic water distribution and treatment, are expected to turn to the technology and efficiency of the private sector. You can't print water!
Veolia Environment (VE), the growing global giant of this industry, trades at a P/E of 22+ and is down 70%+ from highs a year ago. HOO trades at a P/E of just over 4 and is down over 80% from its IPO a year ago. Furthermore, Cascal has reported much of FY2009 and, while revenues are not above 2008 levels, profit margins have been maintained and criteria for several future rate increases have been met.
This stock is traded on somewhat low volume and doesn't make Wall Street headlines. The company, however, has received awards and accolades from governments all over the world, while getting paid to sustain human life. These, along with an annual dividend and a valuation more in line with the coal industry, are what I call strong fundamentals.
Disclosure: Long HOO, VE, SBS, CWCO
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On May 01 11:36 AM Karris wrote:
> I don't think the writer gets it. Trading today is completely based
> on the UK contract renewal. And at $3 per share, the negotiations
> are not going HOO's way. They do not have exclusivity in that market
> and it's unlikely the rate will rise with the UK economy in deep
> recession. Oh and did he mention insiders hold 60% of the shares
> and may be looking to sell. Guess not, but that's why he writes
> a blog. And please don't even waste my time talking about a dividend
Cascal N.V. Subsidiary, Bournemouth & West Hampshire Water, Receives Important Recognitions from UK Government and Industry Regulator
8:30a ET April 16, 2009 (PR NewsWire)
Cascal N.V. (NYSE: HOO) (the "Company"), a leading provider of water and wastewater services in seven countries, today announced that its subsidiary, Bournemouth & West Hampshire Water (BWHW), was awarded the Charter Mark for excellence in public services for the tenth successive year, and received a certificate of recognition for successfully keeping the standard for more than a decade. In addition, BWHW was named the sixth most efficient water company out of 21 by OFWAT, the economic regulator for the water industry in England and Wales.
Stephane Richer, Cascal's Chief Executive Officer noted, "These important recognitions are a testament to Cascal's dedication to providing superior water service to its customers around the world. As our largest operation, BWHW is looked upon as a leader within the Cascal organization and sets the tone for our other water concessions. Ultimately, these awards acknowledge Cascal and the individuals within the organization that strive to ensure the delivery of high-quality services to our customers."
BWHW provides water to approximately 420,000 people through a system of eight major treatment works and a network of 1,700 miles of pipe.
On May 01 12:35 PM sticktoitiveness wrote:
> I would even if you answer, but sometimes an opinion from someone
> more familiar is helpful.
When somebody owns that much of a company you want to keep an eye on them though.
On May 01 01:52 PM sticktoitiveness wrote:
> Biwater sold shares along with the ipo. It was to raise money for
> a deficit in their pension plan. Given the market in the last 2 years
> Karris's speculation on them selling may hold credence. That's probably
> not a big deal long term.
> When somebody owns that much of a company you want to keep an eye
> on them though.
Also, are you in England? Do you know personally about this company? Why is this the first article you've commented on?
On May 01 04:17 PM Karris wrote:
> I guess any hack can write a blog and claim to be an expert. I'm
> just an old time investor who has seen this show more than once.
> Anytime someone owns a majority of a firm, appoints the board and
> has sold shares in the past is not something to ignore. As a minority
> investor, you are at their mercy. Did I mention their non-compete
> expires in 2011. I can easily see Biwater gradually sell into the
> open market to raise the funds to compete directly with HOO. Then
> you have a real problem. So, you go and cheer the dividend later
> this year. You clearly can't see the forest from the trees. <br/>
I'm not planning on being that bold (we'll see), but what makes this a bad shorter term play? Dilution? At the current valuation it shouldn't matter if people know it exists.
Your caution is warranted, but I'd like to give him a chance. I think you'd be more happy if he just put his fundamental indicators in a fancy spreadsheet accompanied with some trend line charts.
Sometimes a cursory overview is a good starting point to run more diligence. For example, many of the comments here have already been helpful.
On May 01 04:17 PM Karris wrote:
> I guess any hack can write a blog and claim to be an expert. I'm
> just an old time investor who has seen this show more than once.
> Anytime someone owns a majority of a firm, appoints the board and
> has sold shares in the past is not something to ignore. As a minority
> investor, you are at their mercy. Did I mention their non-compete
> expires in 2011. I can easily see Biwater gradually sell into the
> open market to raise the funds to compete directly with HOO. Then
> you have a real problem. So, you go and cheer the dividend later
> this year. You clearly can't see the forest from the trees. <br/>
On May 01 04:59 PM Danny Furman wrote:
> I am not an expert, and you may have valid points. Still, is the
> company undervalued? Are you this skeptical about every subsidiary
> of every corporation? If safety is more important to an investor
> than growth, I fully endorse SBS ahead of VE or HOO.
>
> Also, are you in England? Do you know personally about this company?
> Why is this the first article you've commented on?
02 01:17 PM Karris wrote:
> An expert I am not. I am just experienced when it comes to investing.
> I've seen how unscrupulous traders buy shares, pump up the stock
> with good news, and later dump shares on less suspecting investors.
> I'm not saying you are doing this. I am saying you have not done
> nearly enough homework on HOO to be telling others how great this
> company is. Your cock-eyed optimism is misplaced. Let's have some
> balance in this debate. Where will growth come from in the coming
> years? Where will HOO get the capital to grow its project pipeline?
> Cash on hand and from operations are barely enough to pay for maintenance
> capex and a dividend. Debt makes up 75% of its capital structure.
> And an equity offering at $3 dilutes the hack out of everyone. So
> what's going on with the stock price. Maybe HOO is trying to drum
> up interest to get the stock price up to do a follow-on offering
> with less dilution. After that, the suckers that buy in are left
> holding the bag. And customer accolades don't mean anything when
> every day the company risks delivering contaminated water to thousands
> of customers. Someone can just piss in the aquifer or dump something
> in it and you got serious problems. And who are these governments
> around the world that are praising HOO? Last I heard Panama was
> looking to end its deal with HOO and the Philippine contract is in
> arbitration. Issues a company with great customer service typically
> does not run into. The trading discount you reference is because
> HOO operates in countries where the rule of law is not clearly defined.
> Don't think China or Indonesia can't just say I'm taking back the
> water assets, get lost. Agree or disagree, these are just some things
> to think about. Prediction, results in May will be less than stellar
> and the stock stays flat.
LONDON, Feb 26, 2009 (PR Newswire Europe via COMTEX) -- Changes support more efficient debt service and repatriation of profits and lower consolidated tax rate
Cascal N.V. (HOO: 3.17, +0.23, +7.65%), a leading provider of water and wastewater services in seven countries, announced today that it has completed a reorganization of its subsidiary companies incorporated in the United Kingdom. The reorganization will optimize the servicing of external debt and the return of capital to shareholders by way of dividend. The reorganization became effective February 23, 2009.
Cascal N.V. Announces Nine Month and Third Quarter 2009 Results
LONDON, Feb 09, 2009 (PR Newswire Europe via COMTEX) -- Nine-month revenue from continuing operations up 6.5% to $125.6 million (up 17.2% at constant exchange rates)
- Nine-month EBITDA from continuing operations down 3.9% to $45.7 million (up 5.8% at constant exchange rates)
- Nine-month EPS from continuing operations up 57% to $0.55
Cascal N.V. (HOO: 3.17, +0.23, +7.65%) (the "Company"), a leading provider of water and wastewater services in seven countries, today announced unaudited financial results for the nine months and third quarter ended December 31, 2008. Cascal N.V. results are presented in U.S. dollars.
Year-to-date Fiscal 2009 Results
Revenue from continuing operations for the nine months ended December 31, 2008 increased by 6.5% to $125.6 million, compared to $118.0 million for the same period last year. The $7.6 million increase was the result of an approximate $10.5 million contribution by the historical portfolio (through a combination of rate increases, additional customers and higher volumes) and a $7.9 million contribution by the new acquisitions, offset by a $10.8 million effect of translation of revenues into USD.
- Revenue in China almost doubled, increasing by $7.2 million or 93%, compared to the same period last year, of which $6.2 million was the result of the acquisitions of the Yancheng joint venture on April 29, 2008 and the Zhumadian subsidiary on July 23, 2008, with the remainder due to a combination of rate and volume increases in our pre-existing operations in China and $0.7 million due to favorable exchange rate movements.
- Revenue in Chile increased by $1.9 million or 37%, compared to the same period last year, of which $1.1 million was contributed by the Servicomunal and Servilampa businesses acquired during the period, and $1.1 million was due to a combination of rate increases and higher volumes sold in our pre-existing operations in Chile, offset by $0.3 million due to exchange rate movements. The Servicomunal and Servilampa businesses, acquired on June 27, 2008, are consolidated into the Company's results with a three month lag due to non-coterminous year ends.
- Revenue in Indonesia increased by $1.5 million or 17%, compared to the same period last year, primarily a result of $2 million in additional revenue due to a 20% rate increase implemented in December 2007, together with higher demand for water caused by continued population growth, offset by $0.6 million due to exchange rate movements.
- Revenue in Panama increased by $1.5 million or 23%, compared to the same period last year, due to $1 million arising from rate increases that took effect on April 1, 2008 and September 1, 2008 together with $0.5 million of additional revenue recognized this year following the delayed approval of a rate increase applied for in May 2007.
- Revenue in South Africa decreased by $0.2 million or 1.4%, compared to the same period last year. At constant exchange rates, revenue in South Africa increased by $2.4 million or 18% as a result of a 10% rate increase implemented by the Company's Nelspruit subsidiary and increases of 6% and 9% for water and sewerage rates, respectively, implemented by Siza Water, which came into effect in July 2008, along with continued growth in the number of connections. This revenue increase was offset by $2.6 million due to exchange rate movements.
- Revenue in the UK decreased by $4.2 million or 5.9%, compared to the same period last year. At constant exchange rates, revenue in the UK increased by $3.8 million or 6.0% primarily due to the effect of a scheduled rate increase of 3.68%, together with a $2.3 million increase from the non-regulated business. This revenue increase was offset by $8.0 million due to exchange rate movements.
For the nine months ended December 31, 2008, EBITDA from continuing operations decreased by $1.9 million or 3.9% at current exchange rates, and increased by $2.5 million or 5.8% at constant exchange rates, compared to the same period last year. Of the $2.5 million increase at constant exchange rates, approximately $2.5 million was contributed by new projects and $1.9 million came from organic growth of the historical portfolio, offset by additional corporate overhead. The EBITDA increase was essentially contributed by the Company's operations in China (+$2.4 million), Indonesia (+$1.4 million), South Africa (+$1.0 million), Chile (+$0.6 million) and Panama (+$0.4 million), partially offset by increased overhead (-$1.9 million) and a reduction in the U.K. (-$1.5 million) due notably to higher electricity prices. The increased corporate overhead is mainly the result of higher costs due to tax and legal advisors, insurance and the board of independent directors. The EBITDA increase was offset by $4.4 million due to exchange rate movements. Please read "Use of Non-GAAP Financial Measures" for a description of EBITDA.
Commenting on the Company's results, Stephane Richer, Cascal Chief Executive Officer, stated, "In spite of the challenges of a global economic slowdown, I am very pleased with the continued progress being made by our Group, and remain positive about our ability to deliver continued growth. I am particularly satisfied with the underlying growth trends that the portfolio has once again delivered although these have been somewhat masked by unusually large exchange rate movements during the period. At constant exchange rates, we have achieved strong revenue growth and EBITDA growth in all our geographical segments other than in the UK where revenue has increased by 6% and EBITDA decreased by 4.6%. The EBITDA reduction in the UK is largely driven by increased costs of electricity which we expect will reduce significantly over the next few months. We are committed to working through the current economic turmoil by focusing on the strengths of our operations and are continuing to prove that we can grow in a difficult environment."
Overall, net financial income and expense from continuing operations improved by $16.2 million for the nine months ended December 31, 2008, compared to the same period last year. This result was comprised of an $11.9 million favorable movement in exchange rate results, combined with a $4.3 million decrease in net interest expense. The exchange rate results are principally the result of revaluing a British Pound-denominated current account balance outstanding at December 31, 2008 between the Company and its subsidiary, Cascal Services Limited. The decrease in net interest expense is mainly due to the repayment of borrowings in February 2008 out of the proceeds of the initial public offering, which have been partially and progressively replaced with cheaper borrowings from the Company's revolving loan facility.
For the nine months ended December 31, 2008, net profit from continuing operations was $16.9 million, or $0.55 per share, compared to net profit of $7.6 million, or $0.35 per share, for the same period in the prior year. Including discontinued operations, net profit was $17 million, or $0.56 per share, compared to $0.41 per share for the same period in 2007.
The effective tax rate incurred by continuing operations was 38.9% compared to 43.9% in the same period last year. The U.K. project company incurred a charge to deferred tax of $2.9 million, or two thirds of a total charge of $4.5 million for the year ending March 31, 2009, with respect to a change in U.K. tax legislation that was introduced on July 21, 2008. Without this one-time charge, the effective tax rate for the period falls to approximately 29.0%. In addition, a one-time adjustment in the form of a $0.3 million charge was made to the deferred tax position of the Company's Santiago based regulated operations in respect of its water rights portfolio. The other significant factor impacting the effective tax rate is the extent to which the parent company incurs costs in excess of its taxable income in The Netherlands. During the period ended December 31, 2008 the parent company recorded significant taxable income with respect to favorable movements in foreign exchange rates, which has been applied against tax losses brought forward. This, in turn, had a favorable impact on the overall effective tax rate for the period.
The Company's operating cash flow increased by $8.7 million to $41.6 million during the nine months ended December 31, 2008 relative to the prior year's comparable period.
As of December 31, 2008, the consolidated balance sheet shows cash and cash equivalents of $37.0 million.
Results for the Three Months Ended December 31, 2008
The results for the quarter, which are the difference between the nine months results and the six months results calculated at the respective average exchange rate, are affected by unusually large exchange rate movements experienced during the period.
For the three months ended December 31, 2008, revenue from continuing operations decreased by $1.7 million or 4.2% to $38.4 million, compared to $40.1 million for the same period last year. However, at constant exchange rates, revenue from continuing operations increased by $7.1 million or 23% mainly as result of increases in China (+$3.1 million), Chile (+$1.5 million), the UK (+$1.3 million) and Indonesia (+$0.5 million).
For the three months ended December 31, 2008, EBITDA from continuing operations decreased by $3.5 million or 22% to $12.3 million, compared to the same period last year. However, at constant exchange rates, EBITDA from continuing operations decreased by only $0.2 million or 1.3%. The EBITDA movement was mainly contributed by the Company's operations in China (+$1.0 million), Chile (+$0.5 million) and Indonesia (+$0.4 million), offset by increased overhead (-$1.0 million) and a reduction in the U.K. (-$0.7 million) due notably to higher electricity costs. The EBITDA was affected by $3.3 million due to exchange rate movements. Please read "Use of Non-GAAP Financial Measures" for a description of EBITDA.
For the three months ended December 31, 2008, the net profit from continuing operations was $6.0 million, or $0.20 per share, compared to a net profit of $4.5 million, or $0.20 per share, for the same period last year. Including discontinued operations, net profit for the comparable period in 2007 was $5.5 million, or $0.25 per share.
Guidance
Cascal currently anticipates annual revenue between $162 million and $166 million and EBITDA between $58 million and $60 million for fiscal year 2009.The previously stated guidance was for revenue between $179 million and $184 million and for EBITDA between $68 million and $71 million. The single most significant variance is the strengthening of the USD and notably the USD-GBP exchange rate which was anticipated at the time of the previous guidance last April at 1.94 and is now anticipated at 1.70 (average exchange rate for fiscal year 2009). Of the anticipated change in revenue and EBITDA, approximately $18 million and $6 million, respectively, arise from the movements in exchange rate assumptions used to convert from local currencies into USD.
Recent Business Highlights and Updates
- The Company is continuing to actively develop new project opportunities
and is currently one of two remaining bidders on a project in St. Lucia.
The potential acquisition of the St. Lucia project can be undertaken
with current resources, and Cascal's underlying cash flows are
sufficient to meet the needs of its existing operations.
- Overdue receivables for rate increases from IDAAN, Panama's national
water authority, have risen to approximately $7 million. Cascal has
received written approval for the rate increases and has been given
verbal assurances that the account will be settled in due course and
that IDAAN's 2009 budget has been approved at the full contractual rate.
Conference Call
The Company will host a conference call at 9 a.m. Eastern Time / 2 p.m. GMT on February 10, 2009. On the call, Stephane Richer, CEO of Cascal, and Steve Hollinshead, CFO, will discuss the Company's results, and review operational highlights and other business developments. The Company invites you to participate on the call at the following telephone numbers: +1-877-375-4189 (local), +1-404-665-9923 (international), (0800) 032-3836 (UK Freephone). The access code for all callers is 82954225. The call will also be available via webcast at cascal.co.uk. Please allow extra time prior to the call to visit the site and to download any necessary software to listen to the Internet broadcast. An online archive of the webcast will be available on the Company's website for 30 days following the call. A replay of the call will be available from February 10, 2009 at 9:45 a.m. ET / 2:45 p.m. GMT through March 10, 2009 at 11:59 p.m. ET / March 11, 2009 at 4:59 a.m. GMT. To access the replay, please call +1-800-642-1687 (local) or +1-706-645-9291 (international) and enter the following code: 82954225.
On May 02 02:10 PM Danny Furman wrote:
> I get it... You've been burned (more than most) before. Still, the
> current valuation prices in at least your level of pessimism, and
> there are angles from which this company is poised better than its
> peers. I'm not selling a newsletter, I'm providing people with little
> known information and a perspective. Bashing my opinion with your
> own adds nothing. Additionally, do you diversify? Some people I've
> spoken to recently are looking for one stock to stick every penny
> they have.... I don't think that way.
>
>
> 02 01:17 PM Karris wrote: