Massive Free Cash-Flow Yield

I use FCF Yield to primarilyidentify under-valued stocks. Only companies with FCF yield over 15% will makethe first cut.

This is what CorporateFinance Institute says about FCF :-

“Free cash flow (FCF)measures a company’s financial performance. It shows the cash that a companycan produce after deducting the purchase of assets such as property, equipment, and other major investments from its operating cash flow. In other words, FCFmeasures a company’s ability to produce what investors care most about - cashthat’s available to be distributed in a discretionary way.Compared to earnings per se, free cash flow ismore transparent in showing the company’s potential to produce cash and profits”.

For stocks that makethe cut, I then use a quantitative and qualitative approach to dissect thecompanies further.

Investing thesis for TER is multi-fold – secular growth,low PE, low EV/EBITDA, high EBITDA yield, high FCF yield etc.

Based on the lastest FY reporting and management update,we can derive some interesting inference on TER.

- TER reported strong FCF $306m last FY.

- H2 FCF makes up 82% of full year FCF

- Q4 FCF should be immense (see management comments on Q4business update)

- TER repaid borrowings of $240 million

- FCF Yield based on last FY was 37% (based on current price)

- Upward adjustment of payout ratio and the payment of quarterlydividend reflect Management’s confidence of this FY

TER is indeed a uniqueCash Machine and, barring unforeseen circumstance, we should expect FCF (amountand yield) to easily surpass last FY – thus generating huge returns for shareholders.

Please do your owndue diligence.