Are UBM plc’s (LON:UBM) Interest Costs Too High?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like UBM plc (LSE:UBM), with a market cap of UK£3.69B, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at UBM’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into UBM here. Check out our latest analysis for UBM
Does UBM generate an acceptable amount of cash through operations?
UBM has shrunken its total debt levels in the last twelve months, from UK£687.00M to UK£592.20M – this includes both the current and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at UK£77.70M for investing into the business. Moreover, UBM has generated cash from operations of UK£216.60M over the same time period, resulting in an operating cash to total debt ratio of 36.58%, meaning that UBM’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In UBM’s case, it is able to generate 0.37x cash from its debt capital.
Does UBM’s liquid assets cover its short-term commitments?
Looking at UBM’s most recent UK£552.40M liabilities, the company has not been able to meet these commitments with a current assets level of UK£294.40M, leading to a 0.53x current account ratio. which is under the appropriate industry ratio of 3x.
Can UBM service its debt comfortably?
With debt reaching 47.40% of equity, UBM may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. 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 UBM’s case, the ratio of 8.84x suggests that interest is appropriately 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:
UBM’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for UBM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research UBM to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for UBM’s future growth? Take a look at our free research report of analyst consensus for UBM’s outlook.
Valuation: What is UBM 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 UBM 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.
