Are Kambi Group plc’s (STO:KAMBI) Interest Costs Too High?
Investors are always looking for growth in small-cap stocks like Kambi Group plc (STO:KAMBI), with a market cap of kr5.6b. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into KAMBI here.
Does KAMBI produce enough cash relative to debt?
Over the past year, KAMBI has maintained its debt levels at around €7m made up of current and long term debt. At this current level of debt, the current cash and short-term investment levels stands at €35m for investing into the business. Moreover, KAMBI has produced €17m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 231%, signalling that KAMBI’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 KAMBI’s case, it is able to generate 2.31x cash from its debt capital.
Can KAMBI pay its short-term liabilities?
Looking at KAMBI’s most recent €11m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €50m, with a current ratio of 4.59x. Having said that, anything above 3x may be considered excessive by some investors. They might argue KAMBI is leaving too much capital in low-earning investments.
Can KAMBI service its debt comfortably?
With a debt-to-equity ratio of 15%, KAMBI’s debt level may be seen as prudent. This range is considered safe as KAMBI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if KAMBI’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 KAMBI, the ratio of 29.17x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
KAMBI’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how KAMBI has been performing in the past. I recommend you continue to research Kambi Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for KAMBI’s future growth? Take a look at our free research report of analyst consensus for KAMBI’s outlook.
Valuation: What is KAMBI 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 KAMBI 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.
