Lampsa Hellenic Hotels (ATH:LAMPS) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Lampsa Hellenic Hotels S.A. (ATH:LAMPS) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Lampsa Hellenic Hotels

What Is Lampsa Hellenic Hotels's Debt?

The image below, which you can click on for greater detail, shows that at December 2020 Lampsa Hellenic Hotels had debt of €138.8m, up from €109.8m in one year. However, it also had €24.2m in cash, and so its net debt is €114.6m.

How Strong Is Lampsa Hellenic Hotels' Balance Sheet?

According to the last reported balance sheet, Lampsa Hellenic Hotels had liabilities of €33.5m due within 12 months, and liabilities of €155.0m due beyond 12 months. Offsetting this, it had €24.2m in cash and €5.97m in receivables that were due within 12 months. So it has liabilities totalling €158.3m more than its cash and near-term receivables, combined.

Lampsa Hellenic Hotels has a market capitalization of €410.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Lampsa Hellenic Hotels's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Lampsa Hellenic Hotels had a loss before interest and tax, and actually shrunk its revenue by 77%, to €18m. That makes us nervous, to say the least.

Caveat Emptor

While Lampsa Hellenic Hotels's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €15m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €30m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Lampsa Hellenic Hotels that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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