Should You Care About HELLA GmbH & Co KGaA’s (FRA:HLE) Cash Levels?

If you are currently a shareholder in HELLA GmbH & Co KGaA (FRA:HLE), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. Today we will examine HELLA GmbH KGaA’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.

See our latest analysis for HELLA GmbH KGaA

Is HELLA GmbH KGaA generating enough cash?

HELLA GmbH KGaA’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for HELLA GmbH KGaA to continue to grow, or at least, maintain its current operations.

I will be analysing HELLA GmbH KGaA’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.

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

After accounting for capital expenses required to run the business, HELLA GmbH KGaA is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!

DB:HLE Net Worth November 2nd 18
DB:HLE Net Worth November 2nd 18

Does HELLA GmbH KGaA have a favourable cash flow trend?

Can HELLA GmbH KGaA improve its operating cash production in the future? Let’s take a quick look at the cash flow trend HELLA GmbH KGaA is expected to deliver over time. Over the next two years, HELLA GmbH KGaA’s operating cash flows is expected to grow by 6.7%, which is encouraging, should capital expenditure levels maintain at an appropriate level. Below is a table of HELLA GmbH KGaA’s operating cash flow in the past year, as well as the anticipated level going forward.
Current +1 year +2 year
Operating Cash Flow (OCF) €830m €867m €885m
OCF Growth Year-On-Year 4.5% 2.1%
OCF Growth From Current Year 6.7%

Next Steps:

Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I recommend you continue to research HELLA GmbH KGaA to get a better picture of the company by looking at:

  1. Valuation: What is HLE 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 HLE is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on HELLA GmbH KGaA’s board and the CEO’s back ground.
  3. 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 editorial-team@simplywallst.com.