What does Motor Oil (Hellas) Corinth Refineries S.A.’s (ATH:MOH) Balance Sheet Tell Us About Its Future?

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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Motor Oil (Hellas) Corinth Refineries S.A. (ATH:MOH) with a market-capitalization of €2.3b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine MOH’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MOH here.

Check out our latest analysis for Motor Oil (Hellas) Corinth Refineries

How much cash does MOH generate through its operations?

MOH has sustained its debt level by about €948m over the last 12 months which accounts for long term debt. At this stable level of debt, MOH currently has €710m remaining in cash and short-term investments , ready to deploy into the business. Additionally, MOH has produced cash from operations of €257m in the last twelve months, resulting in an operating cash to total debt ratio of 27%, meaning that MOH’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MOH’s case, it is able to generate 0.27x cash from its debt capital.

Can MOH meet its short-term obligations with the cash in hand?

With current liabilities at €1.0b, it seems that the business has been able to meet these commitments with a current assets level of €2.0b, leading to a 1.89x current account ratio. Generally, for Oil and Gas companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

ATSE:MOH Historical Debt February 12th 19
ATSE:MOH Historical Debt February 12th 19

Is MOH’s debt level acceptable?

With debt reaching 82% of equity, MOH may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if MOH’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For MOH, the ratio of 13.36x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

MOH’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for MOH’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Motor Oil (Hellas) Corinth Refineries to get a better picture of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for MOH’s future growth? Take a look at our free research report of analyst consensus for MOH’s outlook.
  2. Valuation: What is MOH 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 MOH is currently mispriced by the market.
  3. 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.

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.