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Is KAZ Minerals PLC (LON:KAZ) A Financially Sound Company?

Lee Kay

Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as KAZ Minerals PLC (LSE:KAZ) with a market-capitalization of UK£4.54B, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. KAZ’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into KAZ here. View our latest analysis for KAZ Minerals

Does KAZ generate enough cash through operations?

KAZ has sustained its debt level by about US$3.89B over the last 12 months comprising of short- and long-term debt. At this current level of debt, KAZ currently has US$1.82B remaining in cash and short-term investments for investing into the business. Moreover, KAZ has generated cash from operations of US$752.00M in the last twelve months, resulting in an operating cash to total debt ratio of 19.35%, signalling that KAZ’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In KAZ’s case, it is able to generate 0.19x cash from its debt capital.

Can KAZ pay its short-term liabilities?

At the current liabilities level of US$1.01B liabilities, the company has been able to meet these obligations given the level of current assets of US$2.41B, with a current ratio of 2.39x. Usually, for Metals and Mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

LSE:KAZ Historical Debt May 25th 18

Does KAZ face the risk of succumbing to its debt-load?

With total debt exceeding equities, KAZ 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 KAZ’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 KAZ, the ratio of 5.16x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as KAZ’s high interest coverage is seen as responsible and safe practice.

Next Steps:

KAZ’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure KAZ has company-specific issues impacting its capital structure decisions. I recommend you continue to research KAZ Minerals to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for KAZ’s future growth? Take a look at our free research report of analyst consensus for KAZ’s outlook.
  2. Valuation: What is KAZ 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 KAZ is currently mispriced by the market.
  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.