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If you are currently a shareholder in Hamburger Hafen und Logistik Aktiengesellschaft (FRA:HHFA), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. 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 HHFA’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 Hamburger Hafen und Logistik
Is Hamburger Hafen und Logistik generating enough cash?
Free cash flow (FCF) is the amount of cash Hamburger Hafen und Logistik has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
I will be analysing Hamburger Hafen und Logistik’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
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
Hamburger Hafen und Logistik’s yield of 7.76% last year indicates its ability to produce cash at the same rate as the market index, taking into account the company’s size. However, given that the risk for holding single-stock Hamburger Hafen und Logistik is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.
What’s the cash flow outlook for Hamburger Hafen und Logistik?
Can HHFA improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 16%, ramping up from its current levels of €223m to €258m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, HHFA’s operating cash flow growth is expected to decline from a rate of 10% next year, to 5.1% in the following year. But the overall future outlook seems buoyant if HHFA can maintain its levels of capital expenditure as well.