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Orpea reported a passable level of Q3 revenue, thanks to a progressive occupancy recovery and meaningful price increases. However, the group trimmed further its earnings outlook for the mid-term, mainly to reflect the additional initiatives to rebuild the quality of services and high inflationary pressure, and subject to steeper price increases. We will cut our estimates but we do not expect major changes to our target price as the latter still relies only on the NAV, as a transitionary measure
Companies: Orpea (ORP:EPA)Orpea SA (ORP:PAR)
AlphaValue
For the HY, Orpea reported a further hit to profitability, mainly led by additional initiatives to rebuild the quality of services and inflationary pressures. Heavy financial expenses further levered these negatives. The company has revised its FY guidance downward and will release new mid-term guidance in early November.
Orpea’s Q2 organic growth looked strong but the nursing home activities in France remained under pressure. We don’t see any positive catalysts for the short term and we are comfortable with our current target price.
Orpea has further downgraded its guidance for 2023-25, noting the lingering shadow overhanging the recovery in occupancy at the nursing homes in France and heavier staff costs. An offset effect on liquidity may come from non-recurring tax items and lower capex. Our target price has been further eroded by the gloomy outlook and we reiterate our pessimistic view.
Orpea ended 2022 with a net loss of over €-4bn, including jumbo asset impairments/depreciation of over €-4bn and a tax credit of €0.6bn. The mid-term guidance remained broadly unchanged and the management warned of a larger-than-titanic dilution of 2,500x for existing shareholders under the scenario of a cross-class cram-down, or even worse receivership, and that the 250x dilution in the event of a two-thirds majority validation might be the best outcome. We are convinced by the latter option an
Following an update with Orpea, we again stress that Orpea’s financial and business restoration is no walk in the park, at least for the near- to mid-term. Conversely, the spectacular wipe-out of the existing shareholders in the ongoing financial restructuring prepares the group for spectacular upside potential. As our latest iteration for a target price is c.€0.19 there is only one option: run for now and come back later.
On the brink of Chapter 11, Orpea agreed with investors to raise a total of €2.7bn capital, along with a titanic equity dilution and a 70% cut in unsecured debts. This is an expensive warning about the importance of ESG for all investors, as its business model is reset to protect seniors and staff alike at the expense of profits. We have adjusted our valuation even further downward. When the dust settles (another 18-24 months?) and if Orpea pays back its considerable remaining debt, equity beare
In the long-awaited transformation plan, the group communicated a series of constructive measures to rebuild the business model which has been seriously hit by the ESG scandal, providing a much brighter outlook. However, the expectation of an unparalleled dilution driven by the titanic equity strengthening scheme should further penalize the share price performance. Our downgraded valuation takes into consideration the scenario of the largest possible dilution with the hope of seeing more upside
Some explanations have been provided but we still lack convincing proof and details. The market reaction is expected to remain negative due to high-level tension between executives and (two minority) shareholders. More visibility and the next catalyst should be available on publication of the transformation plan next Tuesday (15 November).
The market reaction is expected to be negative due to deepened concerns about the company’s financial profile and, in particular, its viability, pointing out the seemingly unreliable senior managers according to a public letter from two long-term shareholders.
French retirement homes continued to restore and the remaining activities continued to enjoy a positive trend in the past quarter, as they did in Q2. Further visibility on the future of the group would seemingly be available only on 15 November when the transformation plan is published.
After being suspended at the request of the regulator on 24 October 2022, Orpea’s shares resumed trading two days later at the market opening and plummeted by up to -45% during the day as the group opened an amicable conciliation procedure with its financial creditors, given a further deteriorated in its financial profile. The management intends to save the company via a substantial debt-to-equity conversion, while we consider a recapitalisation bringing in fresh cash unavoidable.
The group’s actual H1 results and H2 financial forecast remain consistent with the preliminary communication, as well as its limited ability to increase residents’ bed prices for the short term to cope with the ongoing inflation. Despite the leverage and gearing ratios looking passable for the current stage, covenant renegotiations might be needed and concerns raised about a breach. The share was slashed another -21% today. We will further downgrade our estimates and valuation to integrate the n
A French newspaper has reported that one of Orpea’s clinics in France has been temporarily deprived of its operating authorisation due to “failures in the quality and safety of care”. We would remind the risk of a further downturn in the group’s share price, while our current valuation has already captured this risk. No major change is expected to our estimates at the current stage.
Companies: Orpea SA (0NEX:LON)Orpea SA (ORP:PAR)
The market reacted positively to Orpea’s H1 revenue update, as the group’s occupancy rate in the French nursing homes started to recover in June, despite the ESG crisis aftermath. Regardless, management’s perspectives remain unchanged, and we will maintain our current estimates.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Orpea SA. We currently have 0 research reports from 4 professional analysts.
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