Mergence Investment Managers thinks Netcare (NTC) is a cheap, quality business that may not need a return to FY19 (pre-Covid) profitability to deliver good investment returns.Mergence’s scenario analysis indicates risk is skewed to the upside and that downside appears limited.Indications that NTC is a quality company include a detailed bottom-up analysis of Porter’s five forces, moat assessment, supported by high long-term average margins and an unbroken record of dividend growth for 23 years.The company made a positive strategy change two years ago that should lead to improved shareholder value creation. NTC changed its strategy to a capital-light approach with a focus on digitisation and is targeting return on invested capital of more than 20%. We have seen evidence of execution in its rationalisation of underperforming assets.It runs a conservative balance sheet that has protected it from any lender forced shareholder value destruction during Covid. It is unlikely it’ll gear up f...

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