Equity Strategy APAC Equity Strategy - Reality Check: do companies have enough cash?

Our analysts' responses to our survey suggest APAC companies with cash flow needs, capital raise risks, or likely EBITDA deterioration have been hit most in the downturn. 

28 Apr 2020

Relative performance of four baskets since the beginning of 2020

Source: Datastream, UBS

This line graph charts the relative performance of four baskets – EBITDA screen, negative FCF, higher probability of raising fresh equity, and major cash requirement – since the beginning of 2020.

200+ analysts: a deep dive on who's got cash, who may need it

We asked our analysts a series of questions on free cash flow generation, cash and potential equity needs if demand is as bad or worse than during the GFC. Combined with cost sensitivity and worst-case past revenue experiences, we also analysed GFC-style EBITDA scenarios for most stocks in our universe. Unsurprisingly, companies our analysts flagged as potentially at higher relative risks of equity raising, or struggling to generate free cash flow (FCF) in this scenario are among the worst performers in the sell-off.

In a GFC repeat EBITDA falls 27% but 63% of stocks likely generate positive FCF

If demand is as bad as the GFC, current cost flexibility suggests EBITDA drops by 27% in APAC, with Japan worse affected and Asia ex Japan and China less impacted. This is in line with our estimate EPS falling 25% in Asia ex Japan EPS this year. Our analysts expect almost 2/3 of companies can generate positive free cash flow in such a scenario.

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