What does Shenzhen Expressway Company Limited's (HKG:548) Balance Sheet Tell Us About Its Future?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Shenzhen Expressway Company Limited (HKG:548), with a market capitalization of HK$25b, 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. This article will examine 548’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 548 here.
View our latest analysis for Shenzhen Expressway
548’s Debt (And Cash Flows)
548's debt levels have fallen from CN¥16b to CN¥14b over the last 12 months , which also accounts for long term debt. With this debt payback, 548's cash and short-term investments stands at CN¥4.4b , ready to be used for running the business. Additionally, 548 has produced cash from operations of CN¥3.2b during the same period of time, resulting in an operating cash to total debt ratio of 23%, signalling that 548’s debt is appropriately covered by operating cash.
Can 548 meet its short-term obligations with the cash in hand?
Looking at 548’s CN¥6.0b in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of CN¥7.5b, with a current ratio of 1.25x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Infrastructure companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 548 service its debt comfortably?
With debt reaching 71% of equity, 548 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 check to see whether 548 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 548's, case, the ratio of 7.56x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving 548 ample headroom to grow its debt facilities.
Next Steps:
548’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. Since there is also no concerns around 548's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 548's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Shenzhen Expressway to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 548’s future growth? Take a look at our free research report of analyst consensus for 548’s outlook.
Valuation: What is 548 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 548 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.
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