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3 companies with earnings and cash to power growth

Here are three companies that have shown good growth among a number of other positives recently. Each one of them has either high earnings or cash positions that can cover their long-term debt and keep the growth story going. They are not delayed by funding restraints and can keep hammering away at what they do best to maximise results.

BC Iron (ASX: BCI), a junior iron ore miner in WA, is increasing its production with its joint venture with Fortescue Metals Group (ASX: FMG). It’s forecasting FY 2014 total production to be 4.4 – 4.6 million tonnes and is currently on track by shipping 1.16 million tonnes in the September quarter. 2012 and 2013 production was 1.77 million tonnes and 3.15 million tonnes respectively.

In December, it was added to the S&P ASX 200 Index (ASX: ^XJO). This will open its stock to more institutional investors, which have investing restrictions according to index constituency. In its 2013 annual report, it had $138.4 million in cash and reported $48.8 million in NPAT after abnormals, against $67.4 million in long-term debt. So the company can cover its debt and interest well.

Sundance Energy Australia (ASX: SEA) is producing and developing oil and gas in several major resource regions in the US. It has just announced plans to list on the NASDAQ to open itself to more investment and funding. It is looking to bring in about $150-$180 million with the listing, but the plan still is subject to shareholder approval.

In September it produced 3,855 barrels of oil equivalent per day (boepd), net of royalties, and estimates it will be be able to achieve an average 6,500-7,200 boepd by maintaining its current pace of development. By the end of calendar year 2014, production is forecast to be possibly up to 7,700 – 8,500 boepd. In its June 2013 half-year report, it had $125 million in cash and $1.44 million in NPAT against a $29.4 million credit facility.

The New Zealand multi-channel, pay TV and free-to-air TV service provider Sky Network Television (ASX: SKT) has increased its NPAT from $70.9 million in 2009 to $111.4 million in 2013, for a compound annual growth rate of 11.9%.

It had $17.4 million in cash as of June 30, but the great thing was its free cash flow (gross cash flow – gross investments) was $180.9 million, way up from the $114.5 million in 2012. Long-term debt stood at $404 million, less than four times 2013 NPAT and gross gearing is not too high.

Total subscribers rose 1.1% for the year, with the average revenue per user (ARPU) going up by 5.4% from $71.93 to $75.83.

In October, it was announced that Sky Network would be the broadcast rights holder for the forthcoming Winter and Summer Olympics for both free-to-air and pay TV coverage. In December 2012, its low-cost pay TV service with IP connectivity called Igloo was launched, and now through its renewed agreement with Vodafone, it’s looking forward to offering ultra-fast broadband delivered Vodafone TV.

Foolish takeaway

These companies have expanding businesses and the funds or earnings power to support their growth. If growth requires great amounts of capital for a sub-optimal amount of return, then the numbers will show it and a short-term success story will dwindle and fade away. Just like a supermarket that has unit price and sales volume, a reduction in one can be offset by an increase in the other. When both go up, you get a double effect. That’s why statistics like net profit margin and return on equity are so important. A consistently high net profit margin indicates that the company isn’t selling a commodity-like product or service and can charge a premium for it. If they don’t have high margins, then higher than average sales and earnings growth have to offset it.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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