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If you are currently a shareholder in Métropole Télévision S.A. (EPA:MMT), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. This difference directly flows down to how much the stock is worth. Operating in the industry, MMT is currently valued at €1.7b. I will take you through MMT’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.
What is Métropole Télévision’s cash yield?
Free cash flow (FCF) is the amount of cash Métropole Télévision has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
There are two methods I will use to evaluate the quality of Métropole Télévision’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Although, Métropole Télévision generate sufficient cash from its operational activities, its FCF yield of 7.32% is roughly in-line with the broader market’s high single-digit yield. This means investors are being compensated at the same level as they would be if they just held the well-diversified market index.
Does Métropole Télévision have a favourable cash flow trend?
Does MMT’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. In the next few years, the company is expected to grow its cash from operations at a low single-digit rate of 4.0%, increasing from its current levels of €279m to €290m. Although this seems relatively robust, breaking down into year-on-year growth rates, MMT’s operating cash flow growth is expected to decline from a rate of 3.7% next year, to 0.3% in the following year. But the overall future outlook seems relatively optimistic if MMT can maintain its levels of capital expenditure as well.
Métropole Télévision is compensating investors at a cash yield similar to the wider market portfolio. But holding the stock on its own is riskier than investing in the diversified market, which means the yield is not that attractive on a risk-return basis. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. You should continue to research Métropole Télévision to get a more holistic view of the company by looking at:
- Valuation: What is MMT 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 MMT is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Métropole Télévision’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through 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 firstname.lastname@example.org.