Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as UOL Group Limited (SGX:U14), with a market capitalization of S$5.6b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at U14’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of UOL Group’s financial health, so you should conduct further analysis into U14 here.
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How does U14’s operating cash flow stack up against its debt?
U14’s debt levels surged from S$4.2b to S$4.7b over the last 12 months , which accounts for long term debt. With this increase in debt, U14 currently has S$699m remaining in cash and short-term investments for investing 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of U14’s operating efficiency ratios such as ROA here.
Can U14 meet its short-term obligations with the cash in hand?
With current liabilities at S$2.4b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.09x. Generally, for Real Estate 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.
Can U14 service its debt comfortably?
With debt at 32% of equity, U14 may be thought of as appropriately levered. This range is considered safe as U14 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if U14’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 U14, the ratio of 23.85x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving U14 ample headroom to grow its debt facilities.
U14’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure U14 has company-specific issues impacting its capital structure decisions. You should continue to research UOL Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for U14’s future growth? Take a look at our free research report of analyst consensus for U14’s outlook.
- Valuation: What is U14 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 U14 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.
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 email@example.com.