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Are C&C Group plc’s (ISE:GCC) Interest Costs Too High?

Scott Perkins

While small-cap stocks, such as C&C Group plc (ISE:GCC) with its market cap of €955.75M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since GCC is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into GCC here.

Does GCC generate an acceptable amount of cash through operations?

Over the past year, GCC has maintained its debt levels at around €358.60M made up of current and long term debt. At this stable level of debt, GCC’s cash and short-term investments stands at €187.60M , ready to deploy into the business. On top of this, GCC has generated cash from operations of €51.40M during the same period of time, resulting in an operating cash to total debt ratio of 14.33%, signalling that GCC’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In GCC’s case, it is able to generate 0.14x cash from its debt capital.

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

Looking at GCC’s most recent €155.10M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €353.60M, with a current ratio of 2.28x. For Beverage companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

ISE:GCC Historical Debt Apr 30th 18

Is GCC’s debt level acceptable?

With debt reaching 78.71% of equity, GCC may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since GCC is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

At its current level of cash flow coverage, GCC 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 GCC has been performing in the past. You should continue to research C&C Group to get a more holistic view of the stock by looking at:

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