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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as HKT Trust and HKT Limited (HKG:6823), with a market capitalization of HK$77.22b, 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. 6823’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 6823 here.
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How does 6823’s operating cash flow stack up against its debt?
Over the past year, 6823 has ramped up its debt from HK$38.70b to HK$42.82b , which comprises of short- and long-term debt. With this increase in debt, 6823 currently has HK$2.72b remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 6823’s operating efficiency ratios such as ROA here.
Does 6823’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$19.61b liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.53x, which is below the prudent industry ratio of 3x.
Can 6823 service its debt comfortably?
With total debt exceeding equities, 6823 is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 6823’s case, the ratio of 6.65x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving 6823 ample headroom to grow its debt facilities.
Next Steps:
6823’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for 6823’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research HKT Trust and HKT to get a better picture of the stock by looking at: