Korian is struggling on the stock market. The price of the European leader in retirement homes has melted by more than 19% since the major peak on September 1. Equity investors are focused on the trajectory of the Covid pandemic – 12, which worries them for retirement homes, considered a risky sector. “In 2020 , retirement homes, accused of having mismanaged the health crisis (a significant excess mortality had been observed, editor’s note), had been singled out ”, recalls Stephan Dubosq, analyst at Kirao Asset Management. And Korian was also a privileged target.
attacks which may seem unjustified, while the French Ehpad (accommodation establishments for dependent elderly people) showed excess mortality linked to Covid – 15 of 20%, vs 20% for Korian, who “does not seem to have mismanaged the health crisis”, notes Stephan Dubosq. The fact remains that, like the major competitor Orpéa, Korian has suffered from a global controversy in the sector, as well as fears of a slowdown in new customer entries. The specter of a rise in interest rates is also worrying, because of the impact it would have on the valuation of the housing stock. However, Korian “should be less affected than Orpéa, because it only owns a quarter of its real estate, while its competitor owns half of it. In addition, it would really be necessary for interest rates to soar high for the impact on the valuation of the real estate stock to be really significant ”, judges the analyst.
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Korian has real strengths to showcase. The retirement home giant is benefiting from the aging of the population and the low cost of retirement homes compared to home support, which costs families much more … Positioned in a structurally buoyant market, Korian posted a solid organic growth (i.e. excluding acquisitions and currency effects), which should stand at 6% from 2022, for an overall double-digit growth thanks to acquisitions expected. The group could in particular shop in psychiatric clinics , outpatient clinics and senior service residences (less medical retirement homes, which aimed at seniors who are not yet dependent), activities which should boost its margins.
Korian appears cheap on the stock market. Its shares seem inexpensive, the company paying itself (in enterprise value), despite its status as a European leader, only 8 times the EBITDA (operating income before depreciation) restated for rents (that is to say in assuming that Korian outsources 90% of its real estate portfolio), against a multiple of 12 for Orpéa, calculates Stephan Dubosq. Of course, Orpéa, which is very well managed, is considered to be the best in class (“the best in class”) in the sector, but the magnitude (30 at 40%) of Korian’s discount compared to Orpéa is considered exaggerated by the analyst, who estimates a discount limited to 12% approximately would be more appropriate.
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In the short term, Korian shares could continue to face the headwind of the Covid pandemic – 15, but given their low cost, the downside potential seems limited, while the theoretical appreciation potential on the basis of fundamentals is around 50%, Stephan Dubosq having a target at 35 – 42 euros, against a current price of 20 euros.
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