How Financially Strong Is Brenntag AG (ETR:BNR)?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Brenntag AG (ETR:BNR), with a market cap of €7.91b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at BNR’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Brenntag’s financial health, so you should conduct further analysis into BNR here.
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How much cash does BNR generate through its operations?
BNR has built up its total debt levels in the last twelve months, from €2.10b to €2.25b , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at €347.30m , ready to deploy into the business. Additionally, BNR has produced €341.20m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 15.17%, signalling that BNR’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BNR’s case, it is able to generate 0.15x cash from its debt capital.
Can BNR meet its short-term obligations with the cash in hand?
With current liabilities at €2.65b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.45x. For Trade Distributors 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.
Is BNR’s debt level acceptable?
With debt reaching 73.80% of equity, BNR 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 test if BNR’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 BNR, the ratio of 7.5x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as BNR’s high interest coverage is seen as responsible and safe practice.
Next Steps:
At its current level of cash flow coverage, BNR has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BNR has been performing in the past. I recommend you continue to research Brenntag to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BNR’s future growth? Take a look at our free research report of analyst consensus for BNR’s outlook.
Valuation: What is BNR 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 BNR 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 editorial-team@simplywallst.com.
