The Berkeley Group Holdings plc (LON:BKG): Cash Is King

The Berkeley Group Holdings plc (LON:BKG) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I’ve analysed below, the health and outlook of Berkeley Group Holdings’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.

Check out our latest analysis for Berkeley Group Holdings

What is Berkeley Group Holdings's cash yield?

Free cash flow (FCF) is the amount of cash Berkeley Group Holdings has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.

I will be analysing Berkeley Group Holdings’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.

Berkeley Group Holdings’s yield of 15.81% last year indicates its ability to produce cash well-above the market index, given the size of the company. This means investors are adequately rewarded for the risk they take on by overweighting Berkeley Group Holdings.

Is Berkeley Group Holdings's yield sustainable?

Does Berkeley Group Holdings’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. Over the next two years, Berkeley Group Holdings is expected to deliver a decline in operating cash flow compared to the most recent level, which is not an encouraging sign. Below is a table of Berkeley Group Holdings’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)	UK£628m	UK£566m	UK£499m
OCF Growth Year-On-Year		-10.0%	-12%
OCF Growth From Current Year			-21%

Next Steps:

Berkeley Group Holdings sufficiently rewards its shareholders in terms of its cash yield, however, its declining operating cash flow is worrisome. This trend raises questions around the sustainability of the stock's yields. Now you know to keep cash flows in mind, I suggest you continue to research Berkeley Group Holdings to get a more holistic view of the company by looking at:

1. Valuation: What is BKG 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 BKG 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 Berkeley Group Holdings’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.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.