Recommendation: Buy
| Entry Date | Symbol | Recommendation | Entry Price (USD) | Target 1 (USD) | Target 2 (USD) | Holding Duration | Potential Upside* |
|---|---|---|---|---|---|---|---|
| 12 Mar, 25 | CWCO | Buy | USD 28.18 | USD 30.0 | USD 32.0 | 13 days | 13.6% |
*Potential Upside (%) indicates the expected percentage increase from the Entry Price to the Target 2 Price.
Data Powered by EOD Historical Data (“EODHD”).
Consolidated Water Co. Ltd., together with its subsidiaries, designs, constructs, manages, and operates water production and water treatment plants primarily in the Cayman Islands, the Bahamas, and the United States. The company operates through four segments: Retail, Bulk, Services, and Manufacturing. The company produces potable water from seawater utilizing reverse osmosis technology and supply water to end-users, including residential, commercial, and government customers, as well as government-owned distributors. It offers design, engineering, construction, procurement, and management services for desalination projects and water treatment plants, as well as management and engineering services relating to municipal water distribution and treatment. In addition, the company manufactures and services a range of water-related products, including reverse osmosis desalination equipment, membrane separation equipment, filtration equipment, piping systems, vessels, and custom fabricated components; and provides design, engineering, consulting, management, inspection, training, and equipment maintenance services for commercial, municipal, and industrial water production, supply, and treatment, as well as desalination and wastewater treatment. Consolidated Water Co. Ltd. was incorporated in 1973 and is headquartered in Grand Cayman, the Cayman Islands.
Growth in Retail and Bulk Revenue – Retail revenue increased by 5% to $7.6 million, while bulk revenue rose by 3% to $8.8 million, driven by increased water sales and customer connections.
Increased O&M Revenue – Recurring operations and maintenance (O&M) revenue grew by $2.5 million, including $2.1 million from the newly acquired REC subsidiary, which supports long-term business expansion.
Significant Revenue Decline – The company’s total revenue dropped by 33% in Q3 2024, from $49.9 million in Q3 2023 to $33.4 million, primarily due to the completion of two large construction projects.
Services Revenue Drop – The services segment saw a 57% decline, or approximately $16.7 million, due to a $20.6 million reduction in construction-related revenue.
Key investment risks for the company include revenue volatility due to the completion of large construction projects, dependence on regulatory approvals for desalination projects, potential fluctuations in energy costs impacting bulk water margins, and challenges in expanding into new markets amid rising competition.
| Entry Price | Support* | Target 1 | Target 2 |
|---|---|---|---|
| 28.18 | 26.0 | 30.0 | 32.0 |
Data Source: REFINITIV, Analysis: StockNextt
*Support can be considered as an indicative stop-loss, and if prices move below that level on closing basis individuals may evaluate exiting the position depending on their risk appetite, previous holdings, and other factors considered. The support and resistance levels may need to be re-evaluated within 4-6 weeks’ time frame depending on the stock price movements from the date of recommendation on the stock.
Third Quarter 2024 Financial Performance
Consolidated Water reported a 33% decline in total revenue for the third quarter of 2024, amounting to $33.4 million, compared to $49.9 million in the same period of 2023. This decrease was primarily due to the completion of two large construction projects that had significantly contributed to revenue in the prior year. However, retail and bulk water sales demonstrated growth, with retail revenue increasing by 5% to $7.6 million and bulk revenue rising by 3% to $8.8 million. Conversely, manufacturing revenue declined by $362,000 to $4.4 million, and services revenue saw a substantial decrease of 57%, primarily due to a $20.6 million reduction in construction-related revenue.
Operational Developments and Growth Initiatives
The company’s retail water sales in Grand Cayman grew by 4.2%, driven by a 4.8% increase in the number of customer connections within the licensed service area. Additionally, progress continued on the $147 million design-build-operate seawater desalination plant project in Honolulu, Hawaii, which is advancing through the piloting, design, and permitting stages. The company also recognized $2.1 million in operations and maintenance (O&M) revenue from REC, a subsidiary acquired in October 2023, contributing to expansion efforts in water-stressed regions of Colorado.
Profitability and Financial Position
Net income from continuing operations attributable to company stockholders totaled $5.0 million, or $0.31 per diluted share, down from $8.8 million, or $0.55 per diluted share, in the third quarter of 2023. Including discontinued operations, net income stood at $4.5 million, or $0.28 per diluted share, compared to $8.6 million, or $0.54 per diluted share, in the prior-year quarter. Despite the decline in revenue, the company maintained a strong financial position, with cash and cash equivalents of $104.9 million and working capital of $133.9 million as of September 30, 2024.
Manufacturing and Services Performance
Although manufacturing revenue experienced a slight decline, gross profit for the segment increased by 84% to $1.6 million due to improved efficiency and a focus on higher-margin products. Meanwhile, services revenue was significantly impacted by the completion of the Liberty Utilities and Red Gate II projects, leading to a reduction in construction-related revenue. However, this decline was partially offset by a $2.5 million increase in recurring O&M revenue, with newly acquired REC contributing $2.1 million and the remainder attributed to incremental contracts from the company’s PERC Water subsidiary.
Strategic Expansion and Future Outlook
The company continues to advance its development activities for the Honolulu desalination project, with plans to enter the construction phase in late 2025. Management remains optimistic about future growth, citing increasing demand for water treatment and desalination solutions amid rising global water scarcity. Strong retail and bulk water sales in Grand Cayman, a growing U.S.-based O&M business, and continued positive trends in manufacturing are expected to support long-term revenue and earnings growth.
Financial Summary for the First Nine Months of 2024
For the first nine months of 2024, total revenue declined by 17% to $105.6 million compared to $127.0 million in the same period of 2023. The reduction was primarily attributed to a $24.2 million decrease in services revenue, partially offset by increases in the retail and manufacturing segments. Net income from continuing operations totaled $16.1 million, or $1.01 per diluted share, compared to $20.4 million, or $1.28 per diluted share, in the prior year. However, including discontinued operations, net income increased to $26.8 million, or $1.68 per diluted share, largely due to a $12.1 million gain from the sale of land and project documentation in Mexico during the second quarter of 2024.
Considering recent key business, financial updates, current trading levels, and key business risks, a ‘Buy’ recommendation has been given on Consolidated Water Co Ltd. (NASDAQ: CWCO) at the closing market price of USD 28.18, as on March 11, 2025.
Data Powered by EOD Historical Data (“EODHD”).
Sector: Utilities Industry: Utilities - Regulated Water
| Company | Change (USD) | Price (USD) | Trailing PE (x) | Forward PE (x) | Price Sales TTM (x) | Price to Book Value (x) | Enterprise Value to Revenue (x) | Enterprise Value to EBITDA (x) |
|---|---|---|---|---|---|---|---|---|
| CWCO Consolidated Water Co Ltd |
0.14 0.57% | 24.52 | 13.25 | 18.98 | 2.16 | 2.09 | 1.94 | 7.82 |
| AWK American Water Works |
-0.73 0.49% | 146.79 | 25.99 | 22.88 | 5.65 | 2.46 | 8.59 | 15.26 |
| SBS Companhia de Saneamento Basico do Estado de Sao Paulo SABESP ADR |
0.005 0.03% | 17.86 | 14.15 | 9.14 | 0.43 | 1.66 | 0.57 | 1.61 |
| WTRG Essential Utilities Inc |
0.02 0.05% | 39.55 | 20.76 | 18.42 | 4.45 | 1.69 | 7.39 | 16.08 |
| STRNY Severn Trent PLC PK |
-0.13 0.39% | 32.88 | 63.51 | 19.92 | 4.38 | 9.15 | 8.76 | 19.74 |
Data Powered by EOD Historical Data (“EODHD”).
Related Risks: This report may be looked at from high-risk perspective and recommendations are provided are for a short duration. Recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.
Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is March 11,2025. The reference data in this report has been partly sourced from REFINITIV.
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Target: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Target 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Target 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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