Let's get started, today some cash was added to the portfolio and a new position was opened. I really thought long and hard about whether I should get in or not - now it's time.

Welcome ☢️
$SHC (-2.99%) ☢️

Offside boring dividend stocks, this might even arouse the interest of some people to find out what is behind this inconspicuous company.

That's why I'm giving you a brief overview of what Sotera Health is up to and why it fits well into my portfolio, at least for me.

*Please don't expect a super elaborated presentation, I'm trying to write everything myself, but I allowed myself some support with the creation of graphics - came out somehow by chance and I liked it*.

Where do we categorize $SHC (-2.99%) classify?

This is a company in the healthcare sector and even better, which is why it is so interesting for me, a real infrastructure play in the healthcare sector.

No products or hardware are sold - Sotera sterilizes, tests and supports through its 3 companies - Sterigenics, Nordion and Nelson Labs. Sterigenics, Nordion and Nelson Labs the provision of essential services worldwide to keep modern medicine running.

If you look at the following products from other manufacturers, they all have a different purpose, are essential today, but share one feature - or at least they should. or at least they should 🫚

• Surgical instruments
• Catheters/syringes/cardiac pacemakers
• Orthopaedic implants
• Stents/vascular supports
• Gloves, etc.
• Wound care products
• Tissue implants
• etc...

They must be sterile be sterile! 💉 And this is where Sotera comes in, because without you, a large part of the healthcare sector would not be able to distribute its services and products safely.

The global demand for healthcare continues to grow structurally year on year and the importance of Sotera's infrastructure continues to grow with increasing demand.

• Medical technology
• pharmaceutical products
• sterile supply chains
• regulatory validation

But why is the company interesting for me? Here are a few facts that stood out for me & made me buy:

• ~50% adj. EBITDA margin
• ~20-23% FCF margin
• ~20%+ operating margin
• ~45% gross margin
• Strong cash flow conversion
• Net debt/EBITDA continuously improving & positive interest coverage development
• High customer retention and real switching costs
• High regulation & validation processes create massive barriers to entry
• Pricing power

The massive EBITDA margin including the other figures makes it easy to see that there is a massive moat for $SHC (-2.99%) is present.

Sotera has nested itself directly under the global healthcare system and cashes in when others want to sell their goods.

All products need to be sterilized, tested, validated which creates huge workflow bindings. Each process is individual and needs full attention, there is no real copy-paste here.

If you want to switch from Sotera to another provider, you have to:

• Have their product validated again
• Realign the entire process
• Needs the regulatory OK
• Must change their logistics
• This results in very high costs & possible interruptions in the supply chain

In addition, anyone who wants to take Sotera by the scruff of the neck to reduce margins needs to think very carefully and bring a big wallet with them. Because the infrastructure that has been created and has to be copied is not without its costs:

• Sterilization facilities
• Expertise in radioactivity/gamma radiation & ethylene oxide
• Regulatory approvals
• Logistics systems (incoming & outgoing goods)
• Confidence in the validation of products
• Customer loyalty

It takes years, a lot of capital and, above all, expertise to accomplish all this.

Another advantage of Sotera is that it offers the customer a complete system. It is sterilized, tested, validated and you can supply yourself with Co-60. With $SHC (-2.99%) there is virtually everything under one roof.

Competition is therefore rare, with $STE (-1.93%) there is a larger player, but it is not nearly as concentrated and is unlikely to pose a major threat.

If you want to use the Rule of 40 as an evaluation, this is only possible to a limited extent with Sotera, as the growth appears low at first glance.

-> Mid single to high single digits, probably won't knock anyone's socks off.

I would $SHC (-2.99%) But I would also look at their EBITDA margin & the Moat to see if the business is running - this is really more of an infrastructure play.

If margins remain exceptionally high or even grow, EBITDA grows faster than debt, demand remains stable and cash flows continue to scale - even moderate growth can produce a decent compounder.

-----------> Of course, there are also negatives, I can hear them from afar 👂<-----------

1) "The share price looks horrible, it's going to be a disaster" 🛝📉

In fact, the company is currently still having problems with legal proceedings.

Some products with ethylene oxide the problem here:

In high concentrations, this is considered potentially carcinogenic

The company is therefore currently suffering from the possible further lawsuits and claims for damages that the market has on its radar.

2) "Surely this nonsense has an impact on the environment!" 🦖

Like pretty much everything, yes, but Sotera's business could suffer from regulatory implementations/legislation or limit capacity.

3) "The balance sheet looks like it would $SHC (-2.99%) rather collect debt than revenue" 🆘

Absolutely also a core risk that is not to be taken lightly, here too my pain threshold has actually already been reached. Additional or recurring costs for legal disputes or the like would of course be detrimental to de-leveraging and hamper the future.

4) "The ROIC gives my AI prompt bacterial irritable cough" 😮‍💨

Admittedly, the ROIC is not entirely bad, but in relation to the WACC it is no reason to wake up from a coma beaming with joy.

5) "If I was interested in the fucker, I could rub more salt in the wound, sterilized better anyway" 🧂

• A good part of the Moat is based on EtO
• Large customers (concentration)
• Infrastructure costs
• Less growth
• Re-rating fails to materialize
• Recent CEO change

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Why am I still investing?

No real growth play, no dividend & no clean slate because of the court 🔨

I find the discrepancy between the business quality, the moat and the market sentiment super interesting. I am clearly speculating that the business of $SHC (-2.99%) will remain incredibly systemically relevant, that no one else will attack the business case so quickly and that the worries about the legal disputes will soon come to an end -> Re-rating from the market!

In my humble opinion, this could give the share price a real boost, as the business model is indispensable and deeply rooted in our society.

Nobody wants to stay in hospital twice, three times or even longer after a successful operation or medical treatment because there was a little green thing on the cutlery 🦠🧫

What do you think 👍or rather👎?

Questions, suggestions, corrections or AI Prompt seals of approval are always welcome in the comments.

Until then and have a nice evening everyone 👋

*This has probably gotten a bit out of hand, but I hope I was able to outline the company briefly and concisely for anyone who is interested. Please and above all don't take the AI-generated graphics for granted, there may have been errors or not entirely accurate data may have crept in :) The same goes for myself and my research. Otherwise, the sources are probably the usual platforms, the $SHC (-2.99%)
Q1/26 presentation of course & AI training wheels. No investment advice by any stretch of the imagination, burn your money elsewhere 😶‍🌫️*