Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like JCDecaux SA (EPA:DEC), with a market cap of €5.7b, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. DEC’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into DEC here.
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How does DEC’s operating cash flow stack up against its debt?
DEC’s debt levels have fallen from €1.4b to €855m over the last 12 months , which includes long-term debt. With this reduction in debt, DEC currently has €346m remaining in cash and short-term investments , ready to deploy into the business. On top of this, DEC has generated €447m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 52%, signalling that DEC’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In DEC’s case, it is able to generate 0.52x cash from its debt capital.
Does DEC’s liquid assets cover its short-term commitments?
Looking at DEC’s €1.3b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of €1.5b, leading to a 1.14x current account ratio. Usually, for Media companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is DEC’s debt level acceptable?
DEC’s level of debt is appropriate relative to its total equity, at 37%. DEC is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether DEC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In DEC’s, case, the ratio of 13.19x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving DEC ample headroom to grow its debt facilities.
Next Steps:
DEC’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. Keep in mind I haven’t considered other factors such as how DEC has been performing in the past. You should continue to research JCDecaux to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DEC’s future growth? Take a look at our free research report of analyst consensus for DEC’s outlook.
- Valuation: What is DEC 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 DEC 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.
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