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Is Keppel Corporation Limited (SGX:BN4) A Financially Sound Company?

There are a number of reasons that attract investors towards large-cap companies such as Keppel Corporation Limited (SGX:BN4), with a market cap of S$14.00B. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. However, the health of the financials determines whether the company continues to succeed. This article will examine Keppel’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into BN4 here. See our latest analysis for Keppel

How does BN4’s operating cash flow stack up against its debt?

Over the past year, BN4 has reduced its debt from S$9.36B to S$8.19B – this includes both the current and long-term debt. With this debt repayment, BN4 currently has S$2.31B remaining in cash and short-term investments , ready to deploy into the business. Additionally, BN4 has generated S$1.38B in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 16.82%, indicating that BN4’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BN4’s case, it is able to generate 0.17x cash from its debt capital.

Can BN4 meet its short-term obligations with the cash in hand?

Looking at BN4’s most recent S$9.45B liabilities, the company has been able to meet these commitments with a current assets level of S$14.95B, leading to a 1.58x current account ratio. Generally, for Industrials companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

SGX:BN4 Historical Debt Jun 4th 18
SGX:BN4 Historical Debt Jun 4th 18

Is BN4’s debt level acceptable?

With a debt-to-equity ratio of 64.76%, BN4 can be considered as an above-average leveraged company. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. 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 before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BN4’s case, the ratio of 15.25x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes BN4 and other large-cap investments thought to be safe.

Next Steps:

BN4’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure BN4 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Keppel 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 BN4’s future growth? Take a look at our free research report of analyst consensus for BN4’s outlook.

  2. Valuation: What is BN4 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 BN4 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.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.