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bpost SA/NV (EBR:BPOST): Time For A Financial Health Check

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Alex Johannesen
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Investors are always looking for growth in small-cap stocks like bpost SA/NV (EBR:BPOST), with a market cap of €1.7b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into BPOST here.

How does BPOST’s operating cash flow stack up against its debt?

Over the past year, BPOST has ramped up its debt from €70m to €893m , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at €544m for investing into the business. Additionally, BPOST has generated €185m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 21%, signalling that BPOST’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BPOST’s case, it is able to generate 0.21x cash from its debt capital.

Does BPOST’s liquid assets cover its short-term commitments?

With current liabilities at €1.0b, the company has been able to meet these obligations given the level of current assets of €1.2b, with a current ratio of 1.14x. For Logistics companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.

ENXTBR:BPOST Historical Debt January 26th 19
ENXTBR:BPOST Historical Debt January 26th 19

Can BPOST service its debt comfortably?

Since total debt levels have outpaced equities, BPOST is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if BPOST’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For BPOST, the ratio of 26.79x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving BPOST ample headroom to grow its debt facilities.

Next Steps:

BPOST’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how BPOST has been performing in the past. I suggest you continue to research bpost to get a more holistic view of the small-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for BPOST’s future growth? Take a look at our free research report of analyst consensus for BPOST’s outlook.

  2. Valuation: What is BPOST worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BPOST is currently mispriced by the market.

  3. 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.