Hope in Orpea ? Massive dilution first

Did you ever expect a nursing home company to be plagued by a scandal? Operating in the field of healthcare and care homes for the elderly, ORPEA is no stranger to scandals. A leading global player in its sector, Orpea runs a network of 1,156 establishments offering more than 100,000 beds in 23 countries, mainly in Europe. 

The latest scandal is based on an investigation of 250 testimonies which expose what really goes behind the “With you, for you” facade. Orpea developed a system to maximise its profits and the dividends paid to shareholders at the cost of the well-being of its clients. This included drastic cost-cutting techniques and maximising the use of public funding. A range of abusive practices directly affecting the residents and employees were revealed like shortage of care staff, rationing of food and healthcare products etc. 

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 risks in the future.

We have integrated this transformation plan into our estimates, reducing our target price from €5.70 to €3.56. The number of shares has been multiplied by more than 15x (vs 64.6m currently), whereas the negative impact is partially offset by the upgraded outlook post recap. Given that our new valuation takes into consideration the scenario of the largest possible dilution, forward-looking risks are on the upside post the capital raising

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