Is Bonjour Holdings Limited’s (HKG:653) Balance Sheet Strong Enough To Weather A Storm?
Bonjour Holdings Limited (SEHK:653) is a small-cap stock with a market capitalization of HK$955.52M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Specialty Retail businesses operating in the environment facing headwinds from current disruption, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into 653 here.
Does 653 generate enough cash through operations?
Over the past year, 653 has maintained its debt levels at around HK$541.0M comprising of short- and long-term debt. At this stable level of debt, 653 currently has HK$258.5M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of 653’s operating efficiency ratios such as ROA here.
Does 653’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$450.0M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.37x. For Specialty Retail companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can 653 service its debt comfortably?
With a debt-to-equity ratio of 79.20%, 653 can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since 653 is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
At its current level of cash flow coverage, 653 has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how 653 has been performing in the past. You should continue to research Bonjour Holdings to get a more holistic view of the stock by looking at:
1. Historical Performance: What has 653’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
