Yahoo Finance Infratil Limited (NZSE:IFT): How Much Money Comes Back To Investors?
Two important questions to ask before you buy Infratil Limited (NZSE:IFT) 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. I will take you through IFT’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.
See our latest analysis for Infratil
Is Infratil generating enough cash?
Infratil 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.
The two ways to assess whether Infratil’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, Infratil also generates a positive free cash flow. However, the yield of 0.71% is not sufficient to compensate for the level of risk investors are taking on. This is because Infratil’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does Infratil have a favourable cash flow trend?
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 IFT’s expected operating cash flows. In the next couple of years, expected growth for IFT’s operating cash is negative, with operating cash flows expected to decline from its current level of NZ$295.8m. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. However, breaking down growth into a year on year basis, IFT ‘s negative growth rate improves each year, from -19.5% next year, to 13.4% in the following year.
Next Steps:
The company’s low yield relative to the market index means you are taking on more risk holding the single-stock Infratil as opposed to the diversified market portfolio, and also being compensated for less. Furthermore, its declining operating cash flow doesn’t seem appealing. Now you know to keep cash flows in mind, You should continue to research Infratil to get a more holistic view of the company by looking at:
Valuation: What is IFT 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 IFT 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 Infratil’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.
