Have You Considered This Before Investing In Frasers Commercial Trust (SGX:ND8U)?
Frasers Commercial Trust (SGX:ND8U) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine ND8U’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.
Check out our latest analysis for Frasers Commercial Trust
Is Frasers Commercial Trust generating enough cash?
Frasers Commercial Trust’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Frasers Commercial Trust to continue to grow, or at least, maintain its current operations.
There are two methods I will use to evaluate the quality of Frasers Commercial Trust’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
Is Frasers Commercial Trust’s yield sustainable?
Does Frasers Commercial Trust’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow going forward. In the next couple of years, the company is expected to grow its cash from operations at a low single-digit rate of 2.8%, increasing from its current levels of S$90.1m to S$92.6m. Furthermore, breaking down growth into a year on year basis, ND8U is able to increase its growth rate each year, from -4.0% next year, to 7.0% in the following year. The overall future outlook seems relatively optimistic if ND8U can maintain its levels of capital expenditure as well.
Next Steps:
Now you know to keep cash flows in mind, I recommend you continue to research Frasers Commercial Trust to get a better picture of the company by looking at:
Valuation: What is ND8U 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 ND8U is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Frasers Commercial Trust’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through 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.
