Mid-caps stocks, like Hapag-Lloyd Aktiengesellschaft (DB:HLAG) with a market capitalization of €5.50B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at HLAG’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 Amazon’s financial health, so you should conduct further analysis into HLAG here. View our latest analysis for Hapag-Lloyd
How does HLAG’s operating cash flow stack up against its debt?
HLAG has built up its total debt levels in the last twelve months, from €3.91B to €4.18B , which is made up of current and long term debt. With this growth in debt, HLAG currently has €579.10M remaining in cash and short-term investments for investing into the business. On top of this, HLAG has generated €417.20M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 9.98%, meaning that HLAG’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HLAG’s case, it is able to generate 0.1x cash from its debt capital.
Can HLAG meet its short-term obligations with the cash in hand?
At the current liabilities level of €2.64B liabilities, the company is not able to meet these obligations given the level of current assets of €1.61B, with a current ratio of 0.61x below the prudent level of 3x.
Does HLAG face the risk of succumbing to its debt-load?
With total debt exceeding equities, HLAG is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if HLAG’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 HLAG, the ratio of 1.15x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
HLAG’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for HLAG’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Hapag-Lloyd to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HLAG’s future growth? Take a look at our free research report of analyst consensus for HLAG’s outlook.
Valuation: What is HLAG 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 HLAG 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 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.