Shane Posted September 1, 2014 Share Posted September 1, 2014 Hi Schwab - in the annual report they discuss the potential for one of the 'many senior water rights holders' to call upon the stream and force Eldorado to stop bottling, unless they have an augmentation plan. What is the real potential that this happens? Even if they do enact the augmentation plan they plan on using water for crops, I doubt that water would be considered artesian or premium quality. Link to comment Share on other sites More sharing options...
Shane Posted September 4, 2014 Share Posted September 4, 2014 Bought some today, thanks for bringing the idea up Schwab. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted September 5, 2014 Share Posted September 5, 2014 I hope you hit a homerun Shane. On the water rights, from what I've understood, augmentation plans have been enacted in recent history due to drought in Colorado (2002/2003) which cost the company to experience a noticeable revenue dip. They purchased the 20% stake in the ditch company (FRICO?) which has a reserve of water. This reserve water is of the same source as their drinking water. Their source of water is shared by farmers who hold the senior water rights. In this time span, 2 local water delivery competitors have ceased operations so, to my knowledge, the only local water delivery company that is using the Eldorado Springs source, or any other local water source, for bottling operations. With that in mind, I feel ELDO will be able to continue operations for a significantly longer period of time (Not sure if they've provided a time estimate) than in 2002/2003. In my opinion, decreased competition will leave them less susceptible to such a large dip in revenue but major drought and the government actions in response will always be a risk for ELDO. Link to comment Share on other sites More sharing options...
Shane Posted October 1, 2014 Share Posted October 1, 2014 Thanks for posting that information Link to comment Share on other sites More sharing options...
WeiChiLoh Posted October 20, 2014 Share Posted October 20, 2014 Thanks for the idea Schwab! 10x market cap/FCFE with good growth Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted November 14, 2014 Share Posted November 14, 2014 http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10301621-928-57670&type=sect&TabIndex=2&dcn=0001354488-14-005673&nav=1&src=Yahoo Really great earnings. Revenue +10%, expenses increased due to hiring and earnings power is likely over $1m net income and over $1.2m FCF due to billing schedule and state tax refund. 10x current P/E, 6x operating income without adjustments against $6m market cap ($1.00). Link to comment Share on other sites More sharing options...
Shane Posted November 17, 2014 Share Posted November 17, 2014 Schwab, where did you get your incremental margin assumption of about 35% (if memory serves me correctly)? With sales up 10% and delivery costs up 16%, it seems this is either lumpy or the assumption might be too aggressive. Thoughts? Link to comment Share on other sites More sharing options...
Shane Posted December 10, 2014 Share Posted December 10, 2014 Hope to see significant benefit in terms of delivery costs going forward given oil prices. Thanks for the explanation. Have been traveling, sorry to be late to respond! Hoping you make a bundle on this one. Link to comment Share on other sites More sharing options...
Packer16 Posted December 25, 2014 Share Posted December 25, 2014 Cott earlier in the year purchased DS Service (about a $1 billion rev company) who looks to be the number 2 in the nationwide market below Nestle. They also have the #1 water brand in Colorado. They purchased DS Service for 7x EBITDA. You may want to look at the Cott website for transaction details. Packer Link to comment Share on other sites More sharing options...
Shane Posted December 28, 2014 Share Posted December 28, 2014 Thanks Packer, lots of good information in their recent S-4. Using the potentially overstated adjusted EBITDA from the S-4 I get the transaction at about 8x. Where did you get 7x from Packer? On pure EBITDA they were acquired for about 10x judging by the S-4. DS was posting margins much lower than ELDO is. Not sure if this is due to a difference in business model or not. I think this boasts well for those of us who believe ELDO is undervalued. Hard to really compare given the massive size differential. Link to comment Share on other sites More sharing options...
Packer16 Posted December 29, 2014 Share Posted December 29, 2014 Cott has a presentation on their website about the transaction and it includes the EBITDA multiple they acquired DS for and the increase in EBITDA margin they expect from the acquisition. The presentation also has multiples DS paid for smaller water companies as it appears DS was a consolidator in the industry. Packer Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted December 29, 2014 Share Posted December 29, 2014 Thanks for the input Packer. It was an interesting read on DS Services, it's hard to find operating results on water bottle companies. I agree with Shane, I think DS is more like Crystal Rock then ELDO. ELDO seems like a Voss/Fiji/Evian to me with margins twice as high as DS (without any scale outside the Denver region) while DS is like Crystal Rock and the like. I think the thesis for ELDO is the business model and their water. We are talking about the highest rated bottled water in North America (although this matters very little if no one will pay up for it)! The Revenue/Capital ratio, operating margins, incremental margins (operating leverage? - I don't know the correct term; I don't have much academic experience with business/accounting), and the business model separate ELDO. ELDO is capital light with one production facility ($4m) creating $11m+ in revenue and it is likely operating at much less than full capacity. Their delivery business (57% of revenue; like DS) is quite profitable whereas DS is break-even (relying on FCF due to depreciation). They sell the best water in NAM at a value price (slightly higher than Poland Springs/Aquafina/ect even though they are perceived to have Fiji/Evian-quality). DS has numerous production facilities because they sell filtered water which is a non-differentiated product in a commodity business. I think DS gets 57% of their revenue from commodity water sales while ELDO gets 97%+ revenue from water at a high margin. From what I've found on SEC website for DS, they are not profitable at $1B+ in revenue. EBITDA and FCF is almost fully supported by D>A. I can't find the link now but the financial results were from 2011. It seems to be the age-old question, how to value an asset-lite, differentiated product companies? I think I'd only rather own Sparkling ICE as opposed to ELDO, if it were possible. ELDO is currently making $1.2m in FCF on ~$7m in capital with the bonus that capital needs are shrinking while FCF is growing. I could see $1.5m in FCF on $6m in capital in 2015 or 2016 while still having excellent growth prospects. What do you pay for a company with 16% ROIC that has long-run ROIC of 33% (incremental ROIC)? I would think EV/EBITDA is not the correct measure to do a valuation for ELDO. I still see a valuation for ELDO of at least $20m and I could make an argument for a $30m valuation. Link to comment Share on other sites More sharing options...
Packer16 Posted December 29, 2014 Share Posted December 29, 2014 The EBITDA margins of DS and ELDO are almost identical, CRVP is lower at 7.3%. The EBITA margins are also very close with DS at 8.1% and ELDO at 9.8% but CRVP is about 1.9%. The net margins are not comparable due to leverage. Also the return on capital is similar also about 30% for both with return on capital defined as EBITDA/(NWC plus FA). If you look at it on an EBITA basis it is 16% for DS and 23% for ELDO. For DS a good portion of the D&A is acquisition A from purchased companies (not a real expense). For the run rate cap-ex of about $70m and a D&A of $112m the A is estimated to be $42m. Add this to the annualized OI of DS and you get an estimated EBITA of $78m for DS on NWC and PP&E of $500m results in return on capital of about 16%. For ELDO it is $1.18m EBIT on $5.1m of NWC and PP&E resulting in a return on capital of 23%. Both very good returns on capital. Packer Link to comment Share on other sites More sharing options...
spartansaver Posted December 30, 2014 Share Posted December 30, 2014 A substitute that I am worried about with this investment is water filtration products. It seems like the more places you go the more you see Brita or actual high end commercial machines are being used to replace the need of bottles. Being from California, there is a strong urge to use those instead of using plastics. Link to comment Share on other sites More sharing options...
Shane Posted January 2, 2015 Share Posted January 2, 2015 Spartansaver - That is certainly a negative trend for ELDO, although, I do not think that is likely to show up in their financials anytime soon due to their small size and potential market. As long as they are able to sell more bottles of water and spread costs over a fixed asset base I think this will likely work out well. No sign of a flatline in sales. Good points Packer, thanks for your input. Link to comment Share on other sites More sharing options...
Packer16 Posted January 3, 2015 Share Posted January 3, 2015 I do like these types of businesses. I think Cott did not get a bargain and probably paid a premium as the PE firm did not retain any equity but sold 100%. If Cott can realize the synergies then it will be a good acquisition. The 16x EBIT and 9x EBITDA are in line the other branded beverage cos multiples. The issue I see with applying these numbers to ELDO today is the current level of profitability and growth has occurred over past 2 years. If they can continue to grow and generate this level of profitability over the next few years then there multiples are more realistic. The other issue is size and scale as ELDO is smaller however has the margins of a larger player, a good sign. If ELDO initiated a dividend I think that would help as the shareholders are making a bet that at some point they either get a cash flow (dividend) or a buy-out. Given that it appears that this may be a lifestyle business for management and the buy-out multiples (per the DS acquisition presentation) are in the 2 to 4x EBITDA range, a buyout appears unlikely. BTW there is a similar water company in Japan (Water Direct:2588) that taps water from Mt. Fuji and delivers it and sells it to consumers. It has similar but lower EBITDA margins (14%) and EBITDA returns on capital (27%) to ELDO and sells for about 3.8x EBITDA. Its market cap is close to $40 million. Packer Link to comment Share on other sites More sharing options...
Shane Posted March 31, 2015 Share Posted March 31, 2015 Please report back after your meeting. A dividend would be a game changer for me on this investment. The concern right now is that management will just pay themselves more as sales increase. I need to see some way of getting a return as a shareholder. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted April 21, 2015 Share Posted April 21, 2015 A bit of self promotion but I finally finished my ELDO article. I think it does a pretty good job of explaining their current situation and what is needed to continue progress. Let me know if you have any suggestions to improve upon it. Also, I'll be visiting ELDO's factory in 2 weeks! http://seekingalpha.com/article/3081556-eldorado-artesian-springs-water-bottler-with-10-percent-fcf-yield-and-95-percent-gross-margins Link to comment Share on other sites More sharing options...
Okta Posted May 21, 2015 Share Posted May 21, 2015 Why did they terminate their registration with SEC? Is this to save cost or the first step to put outside minority shareholders at a disadvantage? https://www.eldoradosprings.com/sec-filings The decision of the Company's Board of Directors to deregister its common stock was based on the consideration of numerous factors, including the large costs of preparing and filing periodic reports with the SEC, the increased outside accounting, audit, legal and other costs and expenses associated with being a public company, the burdens placed on Company management to comply with reporting requirements, and the low trading volume in and market price of the Company's common stock. The Company has not made any decision whether to continue to provide interim unaudited financial information or annual audited financial information to its shareholders. The Company’s common stock is currently traded on the OTC Pink Market. However, there is no assurance that trading in the Company's common stock will continue on the OTC Pink Market or on any other securities exchange or quotation medium. Link to comment Share on other sites More sharing options...
Shane Posted July 29, 2015 Share Posted July 29, 2015 Great article Schwab! Sorry I am just now getting to this. Link to comment Share on other sites More sharing options...
jawn619 Posted February 1, 2016 Share Posted February 1, 2016 Question on how "bottling" water works. Eldorado has ownership of these springs that refill water over time? As the company continues to grow, they don't have access to more springs correct? Do these springs ever deplete? How capital intensive is the whole water bottling process? Link to comment Share on other sites More sharing options...
NewbieD Posted February 2, 2016 Share Posted February 2, 2016 -- My biggest concern when ELDO went dark was that insiders would be involved in taking the company private. I still feel it is the greatest upside risk. This type of company is so rarely public that it would be a shame to rob current shareholders of the opportunity to share in the long-term success after sharing the tremendous risk of the past few years. -- Interesting company and very nice writeup. I'm gonna study more. What do you mean by going private being an upside risk? What is the land outside Boulder currently used for? Can they sell some without affecting operations? Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted June 29, 2016 Share Posted June 29, 2016 http://www.cnn.com/2016/06/28/us/epa-lead-in-u-s-water-systems/ > I think popular opinion may be swinging back towards bottled water due to Flint and articles like the above. I think the industry is safe for the intermediate term. If anything, ELDO would benefit from recycling movements. They are the only major brand using 100% recycled plastic, which isn't cheap. Meant to post these reports on the geology of the water source awhile ago. Definitely worth a read/skim if you are interested in the company: http://pubs.usgs.gov/pp/1257/report.pdf https://pubs.usgs.gov/bul/1221d/report.pdf Link to comment Share on other sites More sharing options...
InelegantInvestor Posted June 30, 2016 Share Posted June 30, 2016 Does anyone have any recent financial data on ELDO? Anecdotes on water sales? Anything? Link to comment Share on other sites More sharing options...
whiterose Posted August 31, 2016 Share Posted August 31, 2016 I asked the CFO about current data/reports. She said the company hasn't made a decision yet regarding if and when they will announce new information. Link to comment Share on other sites More sharing options...
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