Mid-caps stocks, like Hudbay Minerals Inc (TSX:HBM) with a market capitalization of CA$2.79B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. HBM’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into HBM here. View our latest analysis for Hudbay Minerals
How does HBM’s operating cash flow stack up against its debt?
Over the past year, HBM has maintained its debt levels at around $1,232.2M made up of current and long term debt. At this constant level of debt, HBM’s cash and short-term investments stands at $146.9M , ready to deploy into the business. Additionally, HBM has produced cash from operations of $475.1M during the same period of time, resulting in an operating cash to total debt ratio of 38.56%, meaning that HBM’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In HBM’s case, it is able to generate 0.39x cash from its debt capital.
Does HBM’s liquid assets cover its short-term commitments?
At the current liabilities level of $315.1M liabilities, the company has been able to meet these obligations given the level of current assets of $436.6M, with a current ratio of 1.39x. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does HBM face the risk of succumbing to its debt-load?
HBM is a relatively highly levered company with a debt-to-equity of 52.03%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In HBM’s case, the ratio of 3.3x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as HBM’s high interest coverage is seen as responsible and safe practice.
HBM’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for HBM’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Hudbay Minerals to get a more holistic view of the mid-cap by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for HBM’s future growth? Take a look at our free research report of analyst consensus for HBM’s outlook.
- 2. Historical Performance: What has HBM’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.
- 3. 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 pass 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.