As small investors, when we try to imitate a manager in independently searching for potential companies to invest in, we must resort to a more complex series of ratios, beyond the obvious ratios like upside potential, PER (times profit is reflected in the share price) or dividend yield. One of the indicators that managers tend to favor is the free cash flow yield (free cash flow profitability), which measures a company’s ability to produce free cash flow relative to its market value. A high number for this ratio means that a company has more mattressboth to grow and to reduce its debt or reward its shareholders. It is, using a metaphor, the ibuprofen What to take to avoid headaches.
The expert consensus collected by FactSet predicts that for the Ibex 35 as a whole, the FCF Yield of 2024 is less than 2%, which is the lowest figure of the entire decade and lower than the average of the last 10 years, which is 3.4%. However, this is a temporary drop and analysts predict that the Spanish index’s ability to generate liquidity through its capitalization will improve and set at 2.6% next year and 3.6%, above average, in 2026.
But if photography is broken down into values, even four companies present in 2024 a FCF Yield by more than 10%According to experts: IAG, Telefónica, Acerinox and Enagás. However, in the case of the latter, the expected ratio falls to 7.3% in 2025, so other companies that manage to keep it more constant or even increase would be more interesting. So, around 9% and they manage to maintain it is Logista or Indra.
The highest ratios
IAG is experiencing one of its greatest candy on the stock market and advances by almost 40% in 2024, its most bullish stock market year since 2017. Its price adds 3.7 billion to its market value during the year and its capitalization reaches 12.5 billion euros. Concerning this value, the Spanish-British society has the capacity in 2024 to generate 13.5% of free cash flow. It will also manage to maintain this figure in double digits next year, while analysts expect a FCF Yield by 11.2%. Its good performance on the stock market is also supported by the correct color of your company’s figures and, in fact, experts predict a record level of revenue of just over 31.5 billion euros.
In total, the free cash flow that IAG will generate, according to analysts, will be the highest since 2017, at 1,392 million euros. All this, while maintaining increasing levels of investment. Recently, the airline abandoned the acquisition of Air Europa, but other possible acquisitions like TAP are already hovering. “It was the right decision [la renuncia a Air Europa] taking into account the requirements imposed by the European Commission. However, we believe that IAG has good growth options, both organically and through acquisitions (privatization of TAP). Although IAG is in an intensive investment process, we consider that it has the opportunity to improve shareholder remuneration, including a share buyback plan,” Renta 4 said this week. IAG will distribute its first dividend since the pandemic against 2024 with a profitability of 2.6%.
These 28 euros that Telefónica’s shares were worth are very far away. The headaches faced by investors in the teleco have been countless, but now this company is also a Ibuprofen stock market. He FCF Yield of the company reaches 12.5% in 2024 and will approach 13% in 2025.
The telecommunications company now has lower investment needs and experts expect it to keep its investments at around 5 billion euros in the coming years, the lowest levels since 2006. All this also continuing its debt reduction efforts, while its revenues are increasing (this year, experts expect sales to be the highest since 2020). In addition, maintains a high dividend which offers a yield close to 7% in the following exercises.
Even if Acerinox’s revenues will contract slightly this year compared to the previous year (the upward trend will return in 2025 and in 2026 experts even expect sales to exceed 7 billion euros) , this will not prevent the company from continuing to maintain strong capacity to generate cash flow. Specifically, will generate 11.2% this year and 11.7% next year on its capitalizationwhich loses 15% of its value over the year. In addition to this pillar, the investment in the steel company also stands out for the strong purchase recommendation that experts give it and for its dividend, which yields 6.7% with deduction until 2024. evolution of remuneration, it is necessary to add the upside potential of its stock, 35%, according to estimates.
Enagás is the last on this list to receive keep a FCF Yield double digits in 2024, i.e. 10.1%. However, the increase in its investments to support its growth in green hydrogen will lead to a contraction in its capacity to generate cash flow to 7.3% in 2025.
Endesa, ACS and Aena also obtain FCF Yield above 6% this year. The majority will be able to increase this ratio next year (see graph above).
