OCI NV. (ENXTAM:OCI) 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. This difference directly flows down to how much the stock is worth. Operating in the fertilizers and agricultural chemicals industry, OCI is currently valued at €4.42B. I will take you through OCI’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing. View our latest analysis for OCI
What is OCI’s cash yield?OCI 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 OCI’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
OCI’s yield of 1.79% indicates its sub-standard capacity to generate cash, compared to the stock market index as a whole, accounting for the size differential. This means investors are taking on more concentrated risk on OCI but are not being adequately rewarded for doing so.
What’s the cash flow outlook for OCI?Does OCI’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. In the next few years, OCI’s operating cash flows is expected to more than double, which is highly optimistic, so long as capital expenditure doesn’t ramp up by even more. Below is a table of OCI’s operating cash flow in the past year, as well as the anticipated level going forward.
|Current||+1 year||+2 year||+3 year|
|Operating Cash Flow (OCF)||US$181.70M||US$817.65M||US$970.90M||US$1.11B|
|OCF Growth Year-On-Year||350.00%||18.74%||14.26%|
|OCF Growth From Current Year||434.34%||510.52%|
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto OCI relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Now you know to keep cash flows in mind, I recommend you continue to research OCI to get a better picture of the company by looking at:
- Valuation: What is OCI 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 OCI is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on OCI’s board and the CEO’s back ground.
- 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.