ValuePickr Carolina (USA)

I like to keep things simple - a business is worth present value of its future cash flows. This applies to any/all kind of businesses or financial instruments.

FCF doesn’t look like a good measure for CAPEX heavy businesses because its derived after deducting for money spent on future growth. But we need to factor for this investments in future growth. This is where Buffett’s ‘owner earnings’ way of thinking is very helpful. Bharat Rasayan Ltd - #106 by rupaniamit this link may give you some details into this. If you get this concept well, it should answer most of your above questions in your first para.

The most important thing for me is my entry point in hospital business. I generally prefer to enter at first signs of consolidation cycle turning around where 1) gestation period for new hospitals is 2-3+ years and are making positive EBITDAs 2) old hospitals are generating > 15-18% EBITDA 3) oldest hospitals generating > 23% EBITDA 4) no immediate plans to expand the business with huge debt (small expansion with some debt is fine). 5) enough capacity to sweat the assets and de-lever the balancesheet in next 2-3 years. When I see these signs, there is good chance that numbers should come out good for next 2ish years. And if market is not pricing for better numbers in next 2-3 years - that is even better. I can get business that is turning around and also get to enter at good price.

Generally, hospital business is not cyclical business but considered as defensive business. People will visit hospitals if they get heart attack or have to deliver a baby even in peak COVID-19 situation. Some electives can be postponed, but eventually most cannot be postponed beyond a certain time period.

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