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What You Must Know About Lerøy Seafood Group ASA’s (OB:LSG) Financial Health

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Lerøy Seafood Group ASA (OB:LSG), with a market capitalization of øre40b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at LSG’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into LSG here.

View our latest analysis for Lerøy Seafood Group

Does LSG Produce Much Cash Relative To Its Debt?

Over the past year, LSG has maintained its debt levels at around øre5.6b including long-term debt. At this stable level of debt, LSG currently has øre3.0b remaining in cash and short-term investments , ready to be used for running the business. On top of this, LSG has produced øre2.8b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 50%, indicating that LSG’s debt is appropriately covered by operating cash.

Does LSG’s liquid assets cover its short-term commitments?

With current liabilities at øre4.2b, it appears that the company has been able to meet these obligations given the level of current assets of øre12b, with a current ratio of 2.99x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Food companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

OB:LSG Historical Debt, March 15th 2019
OB:LSG Historical Debt, March 15th 2019

Can LSG service its debt comfortably?

With debt at 33% of equity, LSG may be thought of as appropriately levered. LSG is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if LSG’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For LSG, the ratio of 26.58x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as LSG’s high interest coverage is seen as responsible and safe practice.

Next Steps:

LSG’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure LSG has company-specific issues impacting its capital structure decisions. I suggest you continue to research Lerøy Seafood Group to get a more holistic view of the stock by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for LSG’s future growth? Take a look at our free research report of analyst consensus for LSG’s outlook.

  2. Valuation: What is LSG 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 LSG is currently mispriced by the market.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.