Are Rubis’s (EPA:RUI) Interest Costs Too High?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Rubis (EPA:RUI) with a market-capitalization of €5.61b, rarely draw their attention. 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 RUI’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 Rubis’s financial health, so you should conduct further analysis into RUI here. See our latest analysis for Rubis
How does RUI’s operating cash flow stack up against its debt?
RUI’s debt levels surged from €1.06b to €1.51b over the last 12 months – this includes both the current and long-term debt. With this increase in debt, RUI’s cash and short-term investments stands at €825.30m for investing into the business. Moreover, RUI has generated cash from operations of €327.82m in the last twelve months, leading to an operating cash to total debt ratio of 21.68%, meaning that RUI’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In RUI’s case, it is able to generate 0.22x cash from its debt capital.
Can RUI pay its short-term liabilities?
With current liabilities at €792.44m, it appears that the company has been able to meet these commitments with a current assets level of €1.70b, leading to a 2.15x current account ratio. Generally, for Gas Utilities companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is RUI’s debt level acceptable?
With debt reaching 72.74% of equity, RUI may be thought of as relatively highly levered. 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 RUI’s case, the ratio of 22.4x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving RUI ample headroom to grow its debt facilities.
Next Steps:
At its current level of cash flow coverage, RUI has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for RUI’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Rubis to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for RUI’s future growth? Take a look at our free research report of analyst consensus for RUI’s outlook.
Valuation: What is RUI 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 RUI 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.
