How do you go about it?
In particular I am interested in knowing how would you value the water resource?
i know the operations you can value by projecting future cash flows
but will you also add a value to the ground water / fresh water / sprng water reserves? How will you value these reserves? Shouldnt the reserves be valued indeprendantly of the operations? How should i go about it?
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If it's clean and it's cold you've got some high-quality H2O.
Water sucks. Gatorade is better.
Gatorade sucks. Dom Perignon better.
It has electrolytes. It's what the plants crave.
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Geez guy, we're not talking Texas tea here. Ten seconds of googling told me that Evian is from snow runoff/rain and Fiji is from an aquifer, naturally replenishing resources. There's no water reserve, no wells drilled.
It's good that you know about NAV modeling, for your sake I hope you're going into O&G, but do a couple minutes of research before typing all that out.
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If this the kind of stuff you'd say in an interview then that's all well and good, but doing a DCF out to 15-20 years is just a waste of time in the real world. You'll get nothing but false precision. Now if you've got an MD asking you to propose a higher valuation on a sell-side deal and this gets you there then anything goes....
SB'd for trying. Shame individuals have to hate given a valiant attempt.
Do they own or have sole rights to the reserves? What is the life of a water reserve? I would imagine SOTP would have to play a role in this, keep us updated. To the above poster, you don't have to pick NAV or DCF. Typically you perform a number of valuation techniques and football field it out for any company, they aren't mutually exclusive.
They aren't mutually exclusive, but when comparing the values that they spit out, I think that OP should understand the basic logic to use if they want to favor one over the other.
Evian and Fiji come from naturally replenishing sources, as does most water, so there's not really reserves. Unlike O&G, minerals, etc, you can count on the water being replaced every year obviously with some years better than others. Because of that, there's no need for net asset value (NAV) model/reserves valuation.
A water company such as Evian/Fiji is just like any old basic company. They get revenue from sales of water, there's cost to get the water, bottle it, transport it, sell it, pay employees, etc and you'll be to get to EBITDA. Specialty water is going to sell better when the economy is doing well but EBITDA margins are going to be pretty flat y-y. Because of this, if you don't want a DCF, you can use EV/EBITDA, EV/EBIT, probably even P/E if it's public. Just come up with a good comp set and you're good to go.
Often o&g companies have value of their oil reserve (pdp etc) on the balance sheet
Would the companies such as evian have anything on their balance sheet which gives value to the source of the water they bottle? how would they come up with that value?
That's a good question.
For O&G assets you have a starting asset value and then to get to the ending value you'd do + acquisitions, + CAPEX/dry hole expense, - divestitures, - DD&A, - impairments. For water in an aquifer, once you have an initial value of the asset I think you'd just have + refilled, - depletion and you'd assume that you aren't acquiring or divesting any assets. You could also lump in the value of the land itself or it might make sense to have that as another line item (just land value so no depreciation).
OP, see my other comments above about the actual valuation but I wanted to address the reserves vs. ops part.
If we were talking about using a NAV, reserves and ops are one in the same. If you assume that water is not replenished then as YBB said, you would get a decline curve, get a price deck and get the water. You'd have cost/gallon to get it out and bottle it and sell it but you'd eventually get to the revenue and variable costs associated with each water well as well as how bottles of water were produced by the well (you'd also discount the CFs like a DCF, since it's a modified DCF, and get to CF from the well). Assuming all of your wells are in the same area, same elevation, same depth, etc, you'd just take the CF from a given well and then multiply that by the number of wells and you'd have a NAV.
So to answer your question, reserves = operations
I do some field work in sub-Saharan Africa, so always have my TDS water meter handy.
Fiji is on par (if not worse) than your run of the mill, generic supermarket bottled water.
TDS readings in the 100-130 range. Some US cities have cleaner tap water. Mindblowing.
Revenue = number of water bottles can be sold annual x price per water Cost = how much do I need to pay off the relevant authorities on an annual basis + factory overhead + variable cost per bottle Gross Profit = Revenue - Cost Net Income = Gross Profit - Admin - Marketing - Tax - Interest Price of the Company = Net Income x Price Per Earning Ratio (about 8-12 times) Can we just call it a day after this? Lol.
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