Consolidated Water (CWCO) is a company that operates, builds, maintains, and upgrades water desalinization plants. The company is based in the Cayman Islands and operates in the Cayman Islands, Bahamas, Belize, British Virgin Islands, and Bali with plans in motion to expand into Mexico. Below is a summery of their Q2 2015 earnings report.
Consolidated Water’s net income for the second quarter declined year over year from approximately $2.8 million to $2.25 million. Looking at these numbers alone they may seem like cause for concern; but when you break them down you see that Consolidated Water is a stable long-term growth company with huge potential.
Due to Consolidated Water’s pricing model the company passes off increases in energy prices to the consumer. Since energy prices were considerably lower this quarter than Q2 2014, they did not charge as much thereby decreasing overall revenue.
Year over year gross profit increased $813 as water sales were consistent when compared to Q2 2014 and the cost of retail revenue, due to decreased energy costs, offset the decrease in retail revenue. The retail segment of Consolidated Water’s businesses operates the water utility for the Seven Mile Beach and the West Bay area of the Grand Cayman as well as selling water to resorts in Bali, Indonesia.
Year over year revenue decreased from $10 million to $8.2 million. CEO Frederick McTaggart explained this drop in revenue during their Q2 2015 conference call:
Bulk segment revenues declined from $10 million in the second quarter of 2014 to $8.2 million this past quarter, again, on significantly lower energy pass-through charges to our customers and to a lesser extent, lower volume sales in our Bahamas and Cayman bulk water operations.
What Frederick McTaggart was discussing above was the Bahamas Water and Sewerage Corporation, Consolidated Water’s client, continued water conservation efforts. These efforts caused a 9% drop in volume sales. The 5% drop in volume sales from the Grand Cayman was due to increased rainfall which causes less water to be needed for irrigation. The bulk segment of Consolidated Water’s operation supplies water to government utilities in the Grand Cayman, The Bahamas and Belize.
Consolidated Water is attempting to expand their operations further into Central America through building a 100 million gallon a day seawater desalination plant in Rosarito Beach, Mexico. They are currently awaiting the committee who decides whether to move forward with the plant final decision on their proposal however, Consolidated Water is confident that it will get approved.
Consolidated Water’s cash and cash equivalents increased from $36.755 million in Q1 2015 to $39.323 million in Q2 2015 and debt continued to decrease with their demand note payable decreasing from $8.5 million to $8 million. (For information on what a demand note payable is click here) Total debt, the demand note payable plus Accounts payable and other current liabilities, totaled $12.231 million down from $13.414 million in Q1 2015.
Consolidated Water is a long-term growth company and are perfect for any value investors portfolio. Cash and cash equivalents continue to increase while debt continues to decrease. In addition they are a company who is continually expanding as shown with their maneuver into Mexico. The stock pays a solid dividend of $0.30 (2.52%) a share. In addition the industry they are in is one of continual increased importance. Recently the United Nations released a report stating that by 2030 the world will only have 60% of the total usable water that we need. Water is a commodity that is necessary for the human race’s survival and as the population of the world continuously grows so will Consolidated Water’s business. They are the definition of a value investment.
Disclosure: While I express my opinion in this article, only you can determine if a specific stock is right for your portfolio. You should always do your own research before buying or selling any stock.