SEEC Media Group Limited (SEHK:205) is a small-cap stock with a market capitalization of HK$191.21M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since 205 is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into 205 here.
Does 205 generate enough cash through operations?
205’s debt levels have fallen from HK$134.5M to HK$95.1M over the last 12 months , which is mainly comprised of near term debt. With this debt repayment, the current cash and short-term investment levels stands at HK$546.8M , 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 examine some of 205’s operating efficiency ratios such as ROA here.
Can 205 meet its short-term obligations with the cash in hand?
Looking at 205’s most recent HK$265.8M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of HK$884.9M, with a current ratio of 3.33x. Though, anything above 3x is considered high and could mean that 205 has too much idle capital in low-earning investments.
Can 205 service its debt comfortably?
With a debt-to-equity ratio of 6.08%, 205’s debt level is relatively low. 205 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is virtually non-existent with 205, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
205’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how 205 has been performing in the past. You should continue to research SEEC Media Group to get a better picture of the stock by looking at: