How Financially Strong Is Angling Direct plc (LON:ANG)?
Investors are always looking for growth in small-cap stocks like Angling Direct plc (LON:ANG), with a market cap of UK£57m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into ANG here.
How much cash does ANG generate through its operations?
ANG has built up its total debt levels in the last twelve months, from UK£91k to UK£1.6m – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at UK£779k for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of ANG’s operating efficiency ratios such as ROA here.
Can ANG meet its short-term obligations with the cash in hand?
Looking at ANG’s UK£8.9m in current liabilities, the company has been able to meet these commitments with a current assets level of UK£10m, leading to a 1.15x current account ratio. Usually, for Specialty Retail companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is ANG’s debt level acceptable?
With debt at 18% of equity, ANG may be thought of as appropriately levered. This range is considered safe as ANG is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if ANG’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 ANG, the ratio of 11.48x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving ANG ample headroom to grow its debt facilities.
Next Steps:
ANG’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for ANG’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Angling Direct to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ANG’s future growth? Take a look at our free research report of analyst consensus for ANG’s outlook.
Historical Performance: What has ANG’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
