Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Proximus PLC (EBR:PROX), with a market cap of €6.65b, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at PROX’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into PROX here.
How does PROX’s operating cash flow stack up against its debt?
PROX has sustained its debt level by about €2.50b over the last 12 months comprising of short- and long-term debt. At this constant level of debt, PROX currently has €215.0m remaining in cash and short-term investments for investing into the business. On top of this, PROX has generated cash from operations of €1.49b in the last twelve months, leading to an operating cash to total debt ratio of 59.9%, signalling that PROX’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PROX’s case, it is able to generate 0.6x cash from its debt capital.
Does PROX’s liquid assets cover its short-term commitments?
Looking at PROX’s most recent €2.26b liabilities, it seems that the business has not been able to meet these commitments with a current assets level of €1.76b, leading to a 0.78x current account ratio. which is under the appropriate industry ratio of 3x.
Is PROX’s debt level acceptable?
With debt reaching 81.4% of equity, PROX may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether PROX is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In PROX’s, case, the ratio of 17.38x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although PROX’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how PROX has been performing in the past. You should continue to research Proximus to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PROX’s future growth? Take a look at our free research report of analyst consensus for PROX’s outlook.
- Valuation: What is PROX 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 PROX is currently mispriced by the market.
- 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 firstname.lastname@example.org.