United Energy Group Limited (HKG:467): Financial Strength Analysis

Simply Wall St

Sat, Jun 8, 2019, 7:50 PM

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as United Energy Group Limited (HKG:467), with a market capitalization of HK$35b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at 467’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 467 here.

See our latest analysis for United Energy Group

Does 467 Produce Much Cash Relative To Its Debt?

Over the past year, 467 has borrowed debt capital of around HK$643m – which includes long-term debt. With this ramp up in debt, 467 currently has HK$2.6b remaining in cash and short-term investments , ready to be used for running the business. On top of this, 467 has produced cash from operations of HK$3.9b during the same period of time, resulting in an operating cash to total debt ratio of 606%, meaning that 467’s operating cash is sufficient to cover its debt.

Can 467 meet its short-term obligations with the cash in hand?

Looking at 467’s HK$2.9b in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of HK$5.3b, with a current ratio of 1.84x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Oil and Gas companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

Can 467 service its debt comfortably?

With debt at 5.7% of equity, 467 may be thought of as having low leverage. This range is considered safe as 467 is not taking on too much debt obligation, which may be constraining for future growth.

Next Steps:

467’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how 467 has been performing in the past. I recommend you continue to research United Energy Group to get a better picture of the stock by looking at: