Yahoo Finance CK Infrastructure Holdings Limited (HKG:1038): Cash Is King
CK Infrastructure Holdings Limited (HKG:1038) 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. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I will take you through 1038’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.
View our latest analysis for CK Infrastructure Holdings
What is free cash flow?
CK Infrastructure Holdings’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 CK Infrastructure Holdings to continue to grow, or at least, maintain its current operations.
The two ways to assess whether CK Infrastructure Holdings’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
Along with a positive operating cash flow, CK Infrastructure Holdings also generates a positive free cash flow. However, the yield of 0.39% is not sufficient to compensate for the level of risk investors are taking on. This is because CK Infrastructure Holdings’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
What’s the cash flow outlook for CK Infrastructure Holdings?
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 1038’s expected operating cash flows. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 22%, ramping up from its current levels of HK$2.7b to HK$3.3b in two years’ time. Furthermore, breaking down growth into a year on year basis, 1038 is able to increase its growth rate each year, from 6.2% next year, to 15% in the following year. The overall future outlook seems buoyant if 1038 can maintain its levels of capital expenditure as well.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto CK Infrastructure Holdings relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Now you know to keep cash flows in mind, You should continue to research CK Infrastructure Holdings to get a better picture of the company by looking at:
Valuation: What is 1038 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 1038 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 CK Infrastructure Holdings’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.
