Is Autogrill (BIT:AGL) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Autogrill S.p.A. (BIT:AGL) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Autogrill

What Is Autogrill's Debt?

The image below, which you can click on for greater detail, shows that Autogrill had debt of €1.77b at the end of March 2021, a reduction from €3.38b over a year. However, because it has a cash reserve of €547.3m, its net debt is less, at about €1.23b.

How Strong Is Autogrill's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Autogrill had liabilities of €1.49b due within 12 months and liabilities of €2.97b due beyond that. Offsetting these obligations, it had cash of €547.3m as well as receivables valued at €203.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €3.70b.

This deficit casts a shadow over the €2.34b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Autogrill would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Autogrill's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Autogrill had a loss before interest and tax, and actually shrunk its revenue by 68%, to €1.7b. That makes us nervous, to say the least.

Caveat Emptor

Not only did Autogrill's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping €515m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through €94m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. 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 - Autogrill has 2 warning signs we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. 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. Simply Wall St has no position in any stocks mentioned.
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