value and opportunity

Reader Ben forwarded me his great write up for Curanum, the German care and serviced appartment provider for senior citizens which I publish with his permission:

Curanum AG – Write Up (1)

His conclusion was as follows, but I think one should read the whole piece although Ben is not recommending the stock at the moment::

Conclusion
As overcapacity is expected to be reduced in the upcoming years I expect occupancy rates to recover from their current lows. As this will give Curanum some time to breathe, the management will have to make additional investments in their facilities to be able to comply with regulatory requirements. From my perspective there is not much room for additional acquisitions for the following reasons.

First, the company is highly leveraged. Second, the company just increased its number of outstanding shares by almost 20%. Hence, demand from equity holders should be satisfied at the moment and banks are currently reluctant to even refinance existing debt. Given the high cost pressure and limited pricing power a further decline in margins within the next years is highly likely from my perspective. The company is currently generating healthy cash flows, though capex seems to be too low, which will negatively affect cash flow generation in the future. Most of this is reflected in the current share price, so I do not think that Curanum is a prime short candidate.

To the contrary, given the current downside trend in the stock price, the sock seems to be ready for a rebound. A short term catalyst could be a successful refinancing of the maturing debt facility. However, from a long term investor perspective I do not think that the company does offer an attractive risk/return profile.