Is TF & JH Braime (Holdings) PLC’s (LON:BMT) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like TF & JH Braime (Holdings) PLC (LON:BMT), with a market cap of UK£21.3m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into BMT here.
Does BMT produce enough cash relative to debt?
BMT’s debt levels surged from UK£3.2m to UK£3.4m over the last 12 months , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at UK£938.0k for investing into the business. Additionally, BMT has generated cash from operations of UK£2.7m in the last twelve months, resulting in an operating cash to total debt ratio of 78.1%, signalling that BMT’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 BMT’s case, it is able to generate 0.78x cash from its debt capital.
Can BMT meet its short-term obligations with the cash in hand?
With current liabilities at UK£9.5m, the company has been able to meet these commitments with a current assets level of UK£15.4m, leading to a 1.62x current account ratio. Generally, for Trade Distributors 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.
Can BMT service its debt comfortably?
With debt at 28.9% of equity, BMT may be thought of as appropriately levered. This range is considered safe as BMT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if BMT’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 BMT, the ratio of 27.5x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BMT’s high interest coverage is seen as responsible and safe practice.
Next Steps:
BMT’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure BMT has company-specific issues impacting its capital structure decisions. You should continue to research T.F. & J.H. Braime (Holdings) to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BMT’s future growth? Take a look at our free research report of analyst consensus for BMT’s outlook.
Valuation: What is BMT 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 BMT 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.
