Fuller Smith & Turner PLC (LON:FSTA): How Much Money Comes Back To Investors?

Fuller Smith & Turner PLC (LON:FSTA) 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. 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 Fuller Smith & Turner’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.

Check out our latest analysis for Fuller Smith & Turner

Is Fuller Smith & Turner generating enough cash?

Fuller Smith & Turner generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.

The two ways to assess whether Fuller Smith & Turner’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.

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

Along with a positive operating cash flow, Fuller Smith & Turner also generates a positive free cash flow. However, the yield of 3.89% is not sufficient to compensate for the level of risk investors are taking on. This is because Fuller Smith & Turner’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.

LSE:FSTA Net Worth November 27th 18
LSE:FSTA Net Worth November 27th 18

Does Fuller Smith & Turner have a favourable cash flow trend?

Can Fuller Smith & Turner improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. Over the next two years, a double-digit growth in operating cash of 30% is expected. The future seems buoyant if Fuller Smith & Turner can maintain its levels of capital expenditure as well. Below is a table of Fuller Smith & Turner’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£58m UK£73m UK£76m
OCF Growth Year-On-Year 24% 4.2%
OCF Growth From Current Year 30%

Next Steps:

The company’s low yield relative to the market index means you are taking on more risk holding the single-stock Fuller Smith & Turner as opposed to the diversified market portfolio, and being compensated for less. Though the high operating cash flow growth in the future could change this. Now you know to keep cash flows in mind, You should continue to research Fuller Smith & Turner to get a better picture of the company by looking at:

  1. Valuation: What is FSTA 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 FSTA 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 Fuller Smith & Turner’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.