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SJW Group Closes Water Unit Sale, Offers Special Dividend

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SJW Group (SJW - Free Report) recently announced that it has concluded the sale of its wholly-owned subsidiary — Texas Water Alliance Limited (“TWA”) — to Guadalupe-Blanco River Authority (“GBRA”). Notably, the deal met the company’s target of a fourth-quarter 2017 closure.

Details of the Agreement

Per the sale agreement as of Feb 22, 2016, SJW Group’s TWA unit’s sale was approved for approximately $31 million. However, GBRA retained approximately $3 million, which SJW Group will receive by June 2021.

Per the recent closure, the deal has resulted in net cash proceeds of approximately $23.5 million to SJW Group. Additionally, the company received a pre-tax gain of $12.5 million on the transaction, excluding the retained amount.

Moreover, in relation to this sale out, SJW Group’s management has announced a special dividend of 17 cents per share, which it will pay on Dec 11, 2017, to shareholders of record at the close of business as of Nov 29, 2017. This will take the company's total 2017 dividend to $1.04 per share.

Our view

TWA has been acquiring permits and leases required to develop a water supply project in Texas. To support the increasing usage of water, GBRA agreed to buy TWA in 2016, under its Mid-Basin Project — an initiative to supply 24.4 billion gallons of water in Central Texas. SJW Group agreed to sell TWA unit, in line with its multi-year effort to secure additional water supplies for Texas. This strategy focuses on securing water supplies to accommodate economic and population growth in the region.

In particular, the purchase of TWA assets in Gonzales and Caldwell counties will provide 15,000 acre-feet (ac/ft.) of groundwater through the Mid-Basin Project.

Coming to liquidity, the company’s year-to-date 2017 cash flows from operations increased 14% from 2016-levels. This in turn must have helped the company pay special dividends, in addition to its regular dividend. Further, the announcement of the special dividend is a testament to the company's intention to maintain its reputation of maximizing value to shareholders, encouraging them to invest in its stock.

We can expect the proceeds of the latest deal to help SJW Group further expand its financial liquidity.

Price Movement

SJW Group has outperformed the industry in the last three months. The company’s shares have returned 22.2% compared with the industry’s rally of 8.2%.

 

The outperformance was driven by the company’s solid third-quarter performance on strong growth and profitability fundamentals.

Zacks Rank & Key Picks

SJW Group currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks from the Utility space are Atlantic Power Corporation , Chesapeake Utilities Corporation (CPK - Free Report) and Global Water Resources, Inc. (GWRS - Free Report) , all of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atlantic Power posted third-quarter 2017 earnings from continuing operations of 3 cents per share, beating the Zacks Consensus Estimate of 2 cents by 50%. The company’s 2017 estimates narrowed to a loss of 22 cents per share from a loss of 27 cents in the last 30 days.

Chesapeake Utilities posted third-quarter 2017 earnings from continuing operations of 42 cents per share, beating the Zacks Consensus Estimate of 35 cents by 20%. The company’s 2017 estimates increased to $2.85 per share from $2.83 in the last 30 days.

Global Water posted third-quarter 2017 earnings from continuing operations of 6 cents per share, beating the Zacks Consensus Estimate of 4 cents per share by 50%. The company’s 2017 estimates increased to 9 cents per share from 7 cents per share in the last 30 days.

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