Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Buzzi Unicem SpA (BIT:BZU), with a market capitalization of €3.77B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine BZU’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 BZU here. View our latest analysis for Buzzi Unicem
Does BZU generate enough cash through operations?
BZU has sustained its debt level by about €1.60B over the last 12 months – this includes both the current and long-term debt. At this current level of debt, BZU currently has €815.33M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of BZU’s operating efficiency ratios such as ROA here.
Does BZU’s liquid assets cover its short-term commitments?
At the current liabilities level of €822.53M liabilities, it appears that the company has been able to meet these commitments with a current assets level of €1.75B, leading to a 2.12x current account ratio. Usually, for Basic Materials companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BZU face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 56.11%, BZU can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether BZU is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BZU’s, case, the ratio of 8.27x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving BZU ample headroom to grow its debt facilities.
Next Steps:
BZU’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how BZU has been performing in the past. I recommend you continue to research Buzzi Unicem to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BZU’s future growth? Take a look at our free research report of analyst consensus for BZU’s outlook.
- Valuation: What is BZU 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 BZU is currently mispriced by the market.
- 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.