Yahoo Finance What does AltaGas Ltd.’s (TSE:ALA) Balance Sheet Tell Us About Its Future?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like AltaGas Ltd. (TSE:ALA), with a market cap of CA$4.9b, are often out of the spotlight. 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 ALA’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ALA here.
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How does ALA’s operating cash flow stack up against its debt?
ALA has built up its total debt levels in the last twelve months, from CA$3.7b to CA$10b , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$14m , ready to deploy into the business. On top of this, ALA has produced CA$136m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 1.3%, signalling that ALA’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In ALA’s case, it is able to generate 0.013x cash from its debt capital.
Can ALA pay its short-term liabilities?
With current liabilities at CA$4.6b, it appears that the company may not have an easy time meeting these commitments with a current assets level of CA$3.5b, leading to a current ratio of 0.77x.
Can ALA service its debt comfortably?
Since total debt levels have outpaced equities, ALA is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since ALA is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
ALA’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how ALA has been performing in the past. You should continue to research AltaGas to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ALA’s future growth? Take a look at our free research report of analyst consensus for ALA’s outlook.
Valuation: What is ALA 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 ALA is currently mispriced by the market.
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.
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