What if I told you I could give you 10 companies to invest in which has no debt? What if I told you I could give you a list of 10 debt free shares that has earnings and low net gearing.
Now that’s something that I could definitely do, give you a list of 3 stock market trading companies with no debt but still making earnings. The reason I specifically mentions earnings is because a company with no debt, yet no earnings is not such a great pick. This post is a follow up post from our last post – what stock to buy in corona-virus times
Recently I was in a Facebook stock trading group and I came across this question by a group member “what the debt free companies in ASX” – obviously to invest in these extraordinary times of bushfire, virus and economic market volatility.
There were many willing to give free advice on their own pick, I decided to check every stock mentioned in that group chat and managed to come back with only three that were totally debt free now and still had earnings.
[ as you can see from those striked through , many did not make the mark for debt free companies, they were two sticky notes ]
Factors looked into for this research
1. Sales Trend / Cash flow / Earnings
2. Shareholders equity / Market capitalisation
3. Net Gearing (%)
4. Return on equity / return on capital
The companies listed below has no long-term debt and some earnings history with low to no negative gearing ratio (as of 25/03/2020).
Here is the list of debt free companies.
Codan Limited – $4.59
Codan Limited is a manufacturer and supplier of communications, metal detection, and mining technology, headquartered in Adelaide, South Australia with revenue of A$132.3 million. In 2017, revenue was A$226.1 million.
Per share – Sales ($)
Capitalisation – Long-Term Debt (m)
Leverage- Net gearing (%)
A2 Milk Company Ltd – $15.90
The a2 Milk Company Limited is an ASX 200 public listed company that commercialises intellectual property relating to A1 protein-free milk that is sold under the a2 and a2 MILK brands, as well as the milk and related products like infant formula.
Among these top 4 A2m has some long term debt , which is reasonably covered by massive shareholder equity , market capitalisation, revenue coming in and low gearing.
EML Payments Ltd – $1.445
EML is a Payment solutions provider
Zimplats Holdings Ltd – $7.80
ZIMPLATS HOLDINGS LIMITED (ZIM) is a company within the Metals & Mining sector listed in the ASX indicies. explores for and produces platinum group metals in Zimbabwe.
Zimplats Holdings Limited (ZIM) is a company registered in Guernsey. The company is a subsidiary (87% shareholding) of the South African based and listed Impala Platinum Holdings Limited (Implats).
While this company looks squeaky clean with the whole no debt and good returns, low gearing and being registered in Guernsey, I really don’t know what to make of it.
Here are some explanations of terms that I have looked at while doing research on these stocks, before I came to the above and below listing of stocks.
A measure of how much debt a company has as a proportion of shareholders’ equity, also known as its financial leverage. The higher a company’s net gearing, the more vulnerable it would be in the event of a slowdown in cash flow and earnings because it would still need to service its debts.
If a company’s cash exceeds its debt, its net gearing will be negative.
Return on equity
Return on equity measures how well a company is generating profit using the money shareholders have invested. In general, a falling ROE can be a bad sign. However, some industries are naturally inclined to have a higher ROE than others so ROE is best used to compare companies that operate in the same industry.
Below are some companies that are not totally debt free, but with low long-term debt.
Factors like net gearing ratios compared to return on equity and capital and long-term debt compared to shareholders equity and market capitalisation has been taken into consideration. These factors have been researched and taken to confirm their stability in volatile trading times
Downer EDI Limited
ASX: DOW – $2.77
Downer Group is an integrated services company active in Australia and New Zealand. Listed on the Australian Securities Exchange and New Zealand Stock Exchange as Downer EDI, Downer is an ASX 100 company that also owns 88 per cent of Spotless Group Holdings
Fortescue Metals Group Limited
ASX: FMG – $10.22
Fortescue Metals Group Ltd is an Australian iron ore company. Fortescue is the fourth largest iron ore producer in the world after BHP Billiton, Rio Tinto, and Vale.
Evolution Mining Ltd
ASX: EVN – $4.39
Evolution Mining (ASX:EVN) formerly Catalpa Resources has two gold assets, a 100% interest in the 100000 ounce per annum Edna May Gold Operation.. EVOLUTION MINING LIMITED (EVN) is a company within the Metals & Mining sector listed in the ASX indicies
ASX: NEA -$0.89
Nearmap Limited is an Australian aerial imagery technology and location data company that provides frequently-updated, high-resolution aerial imagery of 88% of Australia’s population, 68% of the United States population, and 72% of the New Zealand population.
OZ Minerals Limited
ASX: OZL – $6.98
OZ Minerals is a modern mining company based in Adelaide, Australia. It was originally formed after the merger of Oxiana Limited and Zinifex in 2008.
In 2009, Chinese state-owned China Minmetals proposed a purchase of the heavily indebted company.
Viva Energy REIT Ltd (ASX: VVR)
Viva energy is an ASX 200 stock that owns and leases out Shell branded service stations. These service stations are typically operated by Wesfarmers Ltd (ASX: WES) as Coles Express stations.
Some write ups on Viva:
Electro Optic Systems Hldg Ltd
ASX: EOS – $3.50
Electro Optic Systems is a leading ASX listed Australian owned Defence and Space company.
Regis Resources Limited
ASX: RRL – $4.01
REGIS RESOURCES LIMITED (RRL) is a company within the Metals & Mining sector listed in the ASX indices
A few more good companies with low debt, and meets other qualifying criteria
ALU.ASX – ALTIUM
No long term debt. Sales and earnings rising. only factor that stood out was gearing was listed @ –43.60 percent while having a market capitalisation of 4,463.00 (m)
Some of the other companies that got striked out in my second sticky note was
So far I have scanned 40 companies financial statements to come to the above picks.
I plan to expand this list and scan some more popular picks in the stock market, to see if they meet our no debt or low debt screeners- so that I can add to this list.
Post publishing this post, I have discovered a post by Marcus Padley (i follow) at livewire markets that feature quite a few stocks from my above debt free companies list. He did mention in that article that – they monitor debt to equity, debt, cash, net debt and a debt to market cap ratio – over 1x is a worry.
Well our picks have been taken into account with similar criteria , but not exactly the same and so a few stock picks of ours in this article match up with that article on livewire.
Feel free to leave a comment.