ENAV S.p.A. (BIT:ENAV) 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. This difference directly flows down to how much the stock is worth. Operating in the industry, ENAV is currently valued at €2.3b. Today we will examine ENAV’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.
What is ENAV’s cash yield?
ENAV generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.
I will be analysing ENAV’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
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
Along with a positive operating cash flow, ENAV also generates a positive free cash flow. However, the yield of 3.6% is not sufficient to compensate for the level of risk investors are taking on. This is because ENAV’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
What’s the cash flow outlook for ENAV?
Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at ENAV’s expected operating cash flows. Over the next few years, expected growth for ENAV’s operating cash is negative, with operating cash flows expected to decline from its current level of €284m. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. However, breaking down growth into a year on year basis, ENAV ‘s negative growth rate improves each year, from -10% next year, to -3.8% in the following year.
Four words – low yield, negative growth. ENAV doesn’t jump out to me as an exciting new investment for you. If you buy the stock, you’re taking on higher risk relative to holding the market index, and further, you are being compensated for less. Now you know to keep cash flows in mind, I suggest you continue to research ENAV to get a more holistic view of the company by looking at:
- Valuation: What is ENAV 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 ENAV 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 ENAV’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 email@example.com.