Valuing Utilities

CFA General
#1

When valuing utilities, what are the industry standard multiples to use for relative valuations? Thank you.

#2

Not an expert by any strech, but would imagine EV/Capacity would make sense.

#3

EV/EBITDA!!! EV/capacity only makes sense for the generation portfolio. but a utility offers much more than just generation (infrastructure, supply, exploration/production, LNG, energy services, environmental services [waste, water, transport] …)

#4

and capacity is misleading as different power plants (hard coal, lignite, gas, wind, hydro, nuclear) have much different utilization rates

#5

ev/ebitda, and also p/rab, where rab = Regulated Asset Base, where the industry is regulated by revenue-cap methodology

#6

ok, this helps, than you thank you.

#7

I can’t imagine investing in a business where someone else is going to tell you how much you can make.

#8

Defensive play.

#9

storko Wrote: ------------------------------------------------------- > Defensive play. I agree. Regulated utilities earn a return on their rate base and essentially recover the costs they incur. They are fairly stable companies. It’s the ratepayers that stand to lose because regulated utilities have less incentive to engage in risky activities (derivatives to hedge fuel costs) because they don’t stand to profit. When O&M costs rise for a regulated utility, they petition for a rate increase. They tend to have low growth, but they are a stable value play IMO.

#10

I suppose there’s a place for them in some portfolios, but not mine. I mean, IDU is still down over 30% in the last few months.

#11

dont they pay dividends frequently. what about DDM as a DCF meth to cover one leg of your val model?

#12

the Utilities I’m looking at have constant dividends (no growth), but increasing earnings. unfortunately, I cannot

#13

they could have constant payout ratio, which could lead to a DDM… although i did not see DDM on utilitites that often. FCFF and peer valuation are the standard valuation techniques IMO.

#14

do a DDM then, if it payts constant divs you are good to go

#15

I am new here and don’t know much about these terms. Can anyone explain these terms.

Thnks regards…

#16

DDM = dividend discount model

#17

There are some small gems here, but the majority of this thread is not sound advice. In 2008 or today.