market folly

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Adrian Warner of Avenir Capital who pitched long HCA Healthcare (NYSE:HCA).


Adrian Warner's London Value Investor Conference Presentation

Prior to founding Avenir Capital in 2011 Adrian Warner worked in private equity.

Long: HCA Healthcare (NYSE: HCA):  HCA is a private hospital provider in the US with 179 hospitals, 38K staff, 47K beds. It has a strong  financial track record of growing revenue and margin stability. Margins have averaged 19% for over  20 years. It has leveraged 5% annual revenue growth into 15% annual EPS growth.

The bulk of the industry is not-for-profit hospitals or state/ local govt owned. Only 20% of hospital are for-profit in the US. In terms of inpatient costs per day for-profit hospitals have 24% lower costs, than not-for-profit. HCA is the dominant hospital provider in the for-profit sector with x2 the market share of the nearest competitor, Tenet Healthcare (THC). HCA’s scale and geographic focus provide a competitive advantage. It focuses on large urban markets which allows a greater focus on high-end subscribers. It has also focused on the sunbelt states which have large elderly populations.

Its industry leading capex allows it to attract the best physician groups. Its competitive advantage is demonstrated by long-term margin superiority, 19% Vs 10% for the industry average.  The hospital sector is expected to grow at around 6% per year. Even though there is a lot of regulatory noise, the Republicans failed attempts to pass health care reform in 2017 - with a majority in both houses - shows that radical change in the sector is unlikely.

HCA has grown through acquisition. The CEO believes the pipeline for potential acquisitions is good. Weak competitors provide M&A opportunities. HCA has bought back 20% of its shares since 2013.  EBITDA 7.7x; PE 10.7x; FCF yield 5.5%.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.