Yahoo Finance Should You Care About Beijing Capital International Airport Company Limited’s (HKG:694) Cash Levels?
Two important questions to ask before you buy Beijing Capital International Airport Company Limited (HKG:694) is, how it makes money and how it spends its cash. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine 694’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.
Check out our latest analysis for Beijing Capital International Airport
Is Beijing Capital International Airport generating enough cash?
Beijing Capital International Airport’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 Beijing Capital International Airport to continue to grow, or at least, maintain its current operations.
There are two methods I will use to evaluate the quality of Beijing Capital International Airport’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
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
Although, Beijing Capital International Airport generate sufficient cash from its operational activities, its FCF yield of 7.32% is roughly in-line with the broader market’s high single-digit yield. This means investors are being compensated at the same level as they would be if they just held the well-diversified market index.
What’s the cash flow outlook for Beijing Capital International Airport?
Does 694’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 few years, expected growth for 694’s operating cash is negative, with operating cash flows expected to decline from its current level of CN¥4.27b. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. Breaking down operating cash growth into a year-on-year basis, it seems like 694 will face a continued decline in growth rates, from 12.2% in the upcoming year, to -3.7% by the end of the third year.
Next Steps:
The company’s average yield compared to the market index means you are taking on more risk holding the single-stock Beijing Capital International Airport as opposed to the diversified market portfolio. In addition to this, the negative growth outlook for operating cash flows is discouraging. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Beijing Capital International Airport to get a better picture of the company by looking at:
Valuation: What is 694 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 694 is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Beijing Capital International Airport’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
