In This Article:
James Cropper PLC (LON:CRPR) 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 paper products industry, CRPR is currently valued at UK£158.92m. Today we will examine CRPR’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.
View our latest analysis for James Cropper
Is James Cropper generating enough cash?
James Cropper’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for James Cropper to continue to grow, or at least, maintain its current operations.
The two ways to assess whether James Cropper’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
James Cropper’s yield of 1.69% 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 James Cropper but are not being adequately rewarded for doing so.
What’s the cash flow outlook for James Cropper?
Does CRPR’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. Over the next couple years, the company is expected to grow its cash from operations at a double-digit rate of 67.94%, ramping up from its current levels of UK£5.52m to UK£9.27m in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, CRPR’s operating cash flow growth is expected to decline from a rate of 24.66% in the upcoming year, to 0.67% by the end of the third year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
Given a low free cash flow yield, on the basis of cash, James Cropper becomes a less appealing investment. This is because you would be better compensated in terms of cash yield, by investing in the market index, as well as take on lower diversification risk. 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 James Cropper to get a more holistic view of the company by looking at: