If you are currently a shareholder in APG|SGA SA (VTX:APGN), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. This difference directly flows down to how much the stock is worth. Operating in the advertising industry, APGN is currently valued at CHF1.05b. I will take you through APGN’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.
Check out our latest analysis for APG|SGA
What is APG|SGA’s cash yield?
APG|SGA 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.
I will be analysing APG|SGA’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
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
Along with a positive operating cash flow, APG|SGA also generates a positive free cash flow. However, the yield of 4.47% is not sufficient to compensate for the level of risk investors are taking on. This is because APG|SGA’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does APG|SGA have a favourable cash flow trend?
Does APGN’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 couple of years, expected growth for APGN’s operating cash is negative, with operating cash flows expected to decline from its current level of CHF62.9m. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. However, breaking down growth into a year on year basis, APGN ‘s negative growth rate improves each year, from -3.2% next year, to 2.2% in the following year.
Next Steps:
Four words – low yield, negative growth. APG|SGA doesn’t jump out to me as an exciting new investment for you. If you buy the stock, you’re taking on higher risk relative to holding the market index, and further, you are being compensated for less. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I recommend you continue to research APG|SGA to get a more holistic view of the company by looking at: