Water Company Makes Big Splash With InvestorsUTILITY: American States’ military contracts help lift shares to all-time high. Monday, February 11, 2013
But American States stuck with it, and last year the company was rewarded. Sprowls said a series of major construction contracts the military gave to the company for upgrading water and wastewater systems on the bases rolled in last year. American States makes money by subcontracting out the work.
“In 2012, it all sort of came together for us,” he said. “It was an exceptionally strong year for us.”
As a result, total revenue for the company’s unregulated water and wastewater services business surged. In the third quarter, it accounted for 24 percent of overall revenue, compared with less than 6 percent in 2007.
Besides signaling success on its own merits, the extra revenue allowed American States to increase its dividend by 27 percent to 36 cents a share a quarter. That gives it a dividend yield of about 2.8 percent based on the $52 price – which made the stock much more attractive to investors.
The company’s San Dimas headquarters is in a one-story building set amid other offices and residential tracts. The 732 employees work at various facilities, including an office in Anaheim.
For this year, the picture is a little more uncertain, especially with the threat of sequestration hanging over all military operations. Faced with steep budget cuts, the Defense Department might scale back construction on its bases, which could put a damper on revenue for American States.
On the other hand, the department might decide to consolidate operations to some of the larger bases, which could turn to American States’ benefit.
“We are somewhat concerned about sequestration, but until we see more about what will actually happen, it’s not an overriding concern,” Sprowls said.
Analyst Parker concurred, saying that whatever happens on the sequestration front, American States likely won’t feel a significant impact this year or even next year.
“This is a concern for the out years,” he said.
As the company finally cashes in on its military business, its main regulated water utility, Golden State Water, is under fire. Golden States has been embroiled in a fight with activists in the Ojai Valley area who claim its rates are too high and have been pushing for nearly two years to have a neighboring municipal water district take over water service.
Next month, the board of the Casitas Municipal Water District is set to vote on whether to authorize the formation of a special taxing district, the first step in the process of taking over the Golden State Water system. If the board votes to go ahead, then voters will have to approve $60 million in bonds to buy the water system from Golden State. That vote, likely this summer, requires two-thirds approval.
If voters approve, then the municipal district can challenge Golden State Water for control.
If no deal is reached, the two sides would then face off in court over whether the Casitas MWD can use eminent domain to take over the Golden State system.
The Ojai system isn’t a big part of American States business. However, if the activists are successful in driving it out of the valley, customers in other territories served by Golden State could try similar tactics to get lower rates. Sprowls intends to keep control of the system.
“I have said before and say again, our system in Ojai is not for sale,” Sprowls said last week.
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