Q: Based on the latest quarter and estimates STC has now low debt leverage (2X TMT EBITDA) and high free cash flow yields (17%). Is this not a good sign of financial health?
5i Research Answer:
As of the most recent quarter, STC has a net debt of $98M and a net debt/EBITDA ratio of 5.8x. The company growth has decelerated meaningfully recently, STC is also operating at an EBIT loss. Its size risk is also quite meaningful here. Given the high debt profile, growth deceleration and unprofitability, we think buyers have some time here. We might still see some year end selling. Based on consensus, minimum revenue growth is exected in the next 18 months.