UNITIL CORP (UTL) stock intrinsic value fair value estimate & owner earnings analysis

Unitil is a holding company for five regulated local utilities that deliver electricity and natural gas in New Hampshire, Massachusetts and Maine: about 110,100 electric customers and 105,000 gas customers after the January 31, 2025 purchase of Bangor Natural Gas and the October 31, 2025 purchase of Maine Natural Gas (together $160.4 million in cash). It is a wires-and-pipes business. The cost of purchased power and gas is passed through to customers, revenue decoupling in Massachusetts and elsewhere insulates margins from weather and volumes, and regulators set the return it may earn on its plant, recently 9.3 to 9.4 percent on an equity layer of about 52 percent (for example, a June 28, 2024 order for Fitchburg added $10.1 million to base rates). How we measured earning power. We started from operating cash flow and removed the swings that are timing rather than economics: receivables, payables, gas-cost recoveries and regulatory deferrals (a net $17.2 million of cash tied up in 2025). We then deducted the spending needed just to keep existing plant whole, which we set equal to depreciation ($88.7 million in 2025). The other $96.4 million of 2025 capital spending ($185.1 million in total) enlarges the asset base the regulators let Unitil earn a return on, so we treated it as growth rather than as a cost of standing still. We did not use a revenue-based formula for growth spending because a large share of a utility's revenue is pass-through energy cost that moves with commodity prices, not with plant. Stock compensation (about $3.3 million in 2025) is charged once, through net income. On this basis cash earnings after interest were $59.8 million in 2025, or $3.56 a share, against $2.78 in 2020 and $3.74 in 2024; per-share results are held back by a share count that has risen from about 15.0 million to 18.2 million as Unitil sold stock to fund construction and the Maine purchases. Because the value below is struck before lenders are paid and the debt is then subtracted, we added back $39.3 million of cash interest, giving $99.1 million of cash earned by the business in 2025 ($91.5 million in 2024, $83.5 million in 2023). Our starting point is the 2025 level, not an average of older years, because the debt we subtract funded plant built through 2025 and earlier years describe a smaller utility. First-half 2026 supports that level: operating cash flow of $105.8 million against $94.3 million a year earlier and net income of $37.9 million against $31.5 million. We did not credit the ten extra months of Maine Natural Gas that 2026 will carry, or the outcome of the pending New Hampshire electric rate case (Unitil Energy asked for $18.5 million, 7.3 percent; temporary rates worth $7.8 million have applied since July 1, 2025 and are reconciled to the final order). Growth we credit. Last year this stream grew about 8 percent; our base case assumes about 2 percent in year one, below that pace. The 2024 and 2025 growth was funded largely by new borrowing and new shares, which we do not count on. We credit only what Unitil funds from its own cash: after dividends ($30.1 million in 2025) it retained roughly $26 million, $33 million and $30 million in 2023, 2024 and 2025 and put it into plant, and each retained dollar earns about 7.3 cents a year (the 52 percent equity layer at about 9.35 percent plus the debt layer at about 5 percent). The base case therefore reinvests about $29 million a year for ten years, deducts that reinvestment from the cash flow, adds about $2.1 million of annual cash flow per year of reinvestment, and then holds the result flat, because the existing plant keeps earning its allowed return for as long as it is maintained. Left out: growth funded by new debt or equity, the pending $100 million purchase of the Aquarion water companies (Massachusetts approved it with conditions on December 12, 2025, but Connecticut regulators denied the underlying sale on November 19, 2025 and the matter was remanded to them on January 15, 2026), and anything dependent on future rate-case outcomes. Debt. At June 30, 2026 Unitil owed $721.2 million of long-term debt (including $40.8 million due within a year) and $234.8 million of short-term borrowings, $956.0 million in all, against $9.2 million of cash. The long-term notes are fixed at an average of about 5.0 percent and mature between 2026 and 2054, so we reduced the debt figure by $51.9 million for the below-market interest it will carry. The nearest maturities are a $30 million 3.70 percent note that fell due in August 2026 and $45 million in November 2027; the short-term borrowings (5.4 percent at year-end 2025, 6.4 to 6.5 percent in 2023 and 2024) are the part most sensitive to credit conditions. Share counts use the 18.2 million shares outstanding at June 30, 2026. The three cases. Base: the business is worth about $1,711 million, it owes about $904 million after the interest benefit, leaving about $807 million, or $44.29 a share. Bull: the business is worth about $1,929 million, owing the same $904 million, leaving about $1,025 million, or $56.22 a share; it adds a full year of Maine Natural Gas and a final New Hampshire electric order close to the $18.5 million requested (we assumed $10 million of added annual cash flow from the two combined), and reinvestment of about $31 million a year, the 2024 to 2025 pace, for twenty years. Bear: the business is worth about $1,383 million against $930 million owed, leaving about $453 million, or $24.84 a share. It assumes a 2020-style dip (cash flow fell 5 percent that year), a permanent 10 percent cut to cash flow from lower allowed returns (roughly one percentage point lower on the equity layer; allowed returns have drifted down across the industry over the last decade and Unitil's own earnings stalled from 2018 to 2020), no reinvestment growth, refinancing of the short-term borrowings and the $116 million of notes due by 2029 at 7 percent instead of today's rates (a $26 million cost), and, after year ten, a gradual loss over twenty years of half the cash flow of the gas business (which we put at about 45 percent of the total, a little below its 49 percent share of customers) in response to decarbonization policy, which Maine's regulators opened an inquiry into on May 13, 2025. Business cash flow stays above the interest bill in every case. What would make this wrong. The largest sensitivity is leverage: debt is roughly one and a half times book equity of $643.7 million, and Unitil spends more on plant than it generates, so it depends on regulators allowing prompt recovery and on markets staying open to new debt and stock. Growth is a function of the allowed return; the case above treats it as modest. The 2018 to 2020 stall, the 2022 to 2024 rise in borrowing costs ahead of rate relief, and the gas-policy inquiries in Maine are the evidence we weighed. We tested the starting level against the first-half 2026 results and found it confirmed. Our earlier estimate of $33 to $63 a share was struck on a different basis and is not comparable; what has changed in the business is debt of $956 million (against $926 million at year-end 2025), about 12 percent more shares outstanding than a year earlier, and first-half profits about 20 percent higher. Margin-of-safety price. We are quite sure of the earnings level: regulated monopolies, cost pass-through and ten years of cash earnings between $2.76 and $3.74 a share with no loss year. We are less sure what the new gas acquisitions and the rate cases will add. The worst plausible outcome is a spell in which regulators hold returns down, costs run ahead of rates and capital markets are expensive or shut: growth stalls and new shares have to be sold at poor prices. The franchises, first-mortgage and staggered senior notes, and revenue decoupling would survive that, but shareholders would be diluted. If we are wrong about allowed returns and the gas business, shares are worth about $25; if Maine and the New Hampshire case go well, about $56. The price assumes a holding period of five years or more, with a dividend of about $1.80 a share in 2025. The margin-of-safety price is $24: at that price the dividend alone is about 7.5 percent, a repeat of the stall and refinancing stress modeled in the bear case implies roughly breaking even, and the base case from there implies a return compounding toward 20 percent a year with dividends included. A higher price leaves too little cushion for a business that borrows heavily to grow.