Panalpina Welttransport (Holding) AG (VTX:PWTN) 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. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I’ve analysed below, the health and outlook of PWTN’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
Check out our latest analysis for Panalpina Welttransport (Holding)
What is free cash flow?
Panalpina Welttransport (Holding) 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 Panalpina Welttransport (Holding)’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
Panalpina Welttransport (Holding)’s yield of 3.09% 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 Panalpina Welttransport (Holding) but are not being adequately rewarded for doing so.
What’s the cash flow outlook for Panalpina Welttransport (Holding)?
Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at PWTN’s expected operating cash flows. Over the next few years, the company is expected to grow its cash from operations at a double-digit rate of 47.9%, ramping up from its current levels of CHF164.6m to CHF243.4m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, PWTN’s operating cash flow growth is expected to decline from a rate of 43.0% next year, to 3.4% in the following year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.