Two important questions to ask before you buy Manutan International SA (EPA:MAN) is, how it makes money and how it spends its cash. This difference directly flows down to how much the stock is worth. Operating in the industry, MAN is currently valued at €470m. Today we will examine MAN’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.
See our latest analysis for Manutan International
What is free cash flow?
Manutan International’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 Manutan International to continue to grow, or at least, maintain its current operations.
The two ways to assess whether Manutan International’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
Manutan International’s yield of 5.55% last year indicates its ability to produce cash at the same rate as the market index, taking into account the company’s size. However, given that the risk for holding single-stock Manutan International is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.
What’s the cash flow outlook for Manutan International?
Can MAN improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 54%, ramping up from its current levels of €39m to €59m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, MAN’s operating cash flow growth is expected to decline from a rate of 47% next year, to 4.6% in the following year. But the overall future outlook seems buoyant if MAN can maintain its levels of capital expenditure as well.
Next Steps:
Manutan International’s positive operating cash flow is encouraging, and its yield is relatively similar to the market index. However, you are taking on more risk by holding a single-stock rather than the well-diversified market index. This means, in terms of risk and return, it’s not the best deal. Now you know to keep cash flows in mind, I recommend you continue to research Manutan International to get a more holistic view of the company by looking at: