News Announcement

Why we invest in – Orpea

2nd October 2019

It’s Good Money Week so we wanted to highlight how impact investing needn’t just be good for society and the environment, but how it can also be a good investment. We’ve chosen one of our portfolio holdings to highlight this.

WHEB believes an ageing population is one of the key sustainability challenges the world faces. We see caring for the elderly as an area where we can have a significant positive impact but there is also a strong investment case. One of our portfolio holdings is Orpea S.A, which predominantly operates nursing homes for the elderly in Europe. We asked Ben Kluftinger, senior investment analyst at WHEB, to tell us more about the stock.

What does the company do?

Orpea is a leading European elderly care home operator but also runs rehabilitation and post-acute care as well as mental health disorder facilities. It manages more than 86,000 beds across a total of 12 countries and is expanding now also outside Europe. The company was founded in 1989 and is head-quartered in France.

Why does WHEB believe this stock is a good investment?

The company is operating in a highly attractive industry driven by long-term demographic trends of growing numbers of elderly and rising global affluence among them. Orpea is strongly positioned within this industry generating healthy mid-single-digit organic growth and acting as a highly selective consolidator. Its business model has a very strong focus on quality and risk management, which has resulted in stable, profitable growth.

Tell me about the industry in which the stock sits

Elderly care is a growth industry. The projected growth in over-80s from 2016 to 2050 is 3.5% on average world-wide with higher growth in emerging markets. In Orpea’s current markets, more than 1 million new beds are expected to be built until 2030 (excluding China). In addition, the market is still highly fragmented and has a high portion of public care which will offer plenty of consolidation opportunities.

How is this stock unique or interesting within the industry?

Orpea stands out within its industry as one of the highest quality operators. Its facilities are mostly located in attractive prime locations and maintained to the highest standards. For example, facilities have the most modern equipment, are user-friendly and operated by highly trained staff. Safety and comfort are paramount. The company conducts regular satisfaction surveys with residents/patients/relatives and in 2017 93.7% of respondents said they would recommend Orpea to somebody close to them. As a result of this quality focus, utilisation of Orpea’s facilities is high. The company also invest in new, innovative concepts such as virtual reality in psychiatric care to help patients overcome phobias or optical sensing for fall detection assistance. At the same time, it has developed best-in-class cost management thanks to its extensive use of IT and data analysis resulting in very attractive operating margins. Orpea uses its expertise to acquire carefully selected, less well run facilities and gradually improve them to those “Orpea standards” which in turn increases utilisation and thus profitability.

What are some stats or facts that support your theory/opinion?

Since 2007, Orpea has grown its revenues and EBITDA by 19% annually while beds expanded by 15%. This growth has primarily been generated outside is home market in France showing Orpea’s ability to “export” its successful business model to other countries. The company has a stable EBITDAR margin profile (~27%) even though it regularly acquires lower margin operators and is expanding into new countries.

What are the 3 – 5 main reasons you are invested in this stock?

We like Orpea for a number of reasons. It benefits from a demographic megatrend which will keep its industry on a growth trend for decades. Within its industry, Orpea is the highest quality operator which helps generating stable growth and profitability. The company is in control of bed prices which are stable to mildly rising. Its international expansion strategy should keep top-line growth close to 10% annually for many years to come. It benefits from a strong, risk conscious management team with a long-term strategy focus. Lastly, partially thanks to our own engagement, Orpea has an improving and by now good ESG record.

What else should we know?

Orpea has a growing real estate portfolio aiming for a 50% ratio of owned vs leased properties (currently 45%). This makes its leverage ratios look stretched on first sight. However, 85% of Orpea’s debt is real estate debt and the company is operating well within its covenants. Its cost of debt is steadily falling (now 3.1%) and is not exposed to potential interest rate increases. The company is not an asset trader – it has a multi-decade investment horizon and its properties serve entirely its care business.

Foresight Group LLP completed an acquisition of the trade and assets of WHEB Asset Management LLP (WHEB). By way of Novation, Foresight Group LLP now acts as investment manager. Foresight Group LLP uses the trading names WHEB and WHEB Asset Management.

Foresight Group LLP and is authorised and regulated by the Financial Conduct Authority with Firm Reference Number 198020 and has its registered office at The Shard, 32 London Bridge Street, London, SE1 9SG. FundRock Partners Limited (formerly Fund Partners Limited) remains the Authorised Corporate Director of the Funds and is authorised and regulated by the Financial Conduct Authority with Firm Reference Number 469278 and has its registered office at Hamilton Centre, Rodney Way, Chelmsford, England, CM1 3BY.

Important Notices:

Risks include: the price of shares (“Shares”) in FP WHEB Sustainability Impact Fund, WHEB Sustainable Impact Fund or WHEB Environmental Impact Fund may increase or decrease and you may not get back the amount originally invested, for reasons including adverse market and foreign exchange rate movements. Past performance does not predict future returns. The Fund invests in equities and is exposed to price fluctuations in the equity markets, and focuses on investments in mid-sized companies in certain sectors so its performance may not correlate closely with the MSCI World Index (the benchmark). For full risks, please see fund prospectus on www.whebgroup.com

General: This information, its contents and any related communication (altogether, the “Information”) is issued by WHEB Asset Management LLP (“WHEB Asset Management”). It is intended for information purposes only and does not constitute or form part of any offer or invitation to buy or sell any security including any shares in the FP WHEB Sustainability Impact Fund or WHEB Sustainable Impact Fund, including in the United States. It should not be relied upon to make an investment decision in relation to Shares in the FP WHEB Sustainability Impact Fund or WHEB Sustainable Impact Fund or otherwise; any such investment decision should be made only on the basis of the Fund scheme documents and appropriate professional advice. This Information does not constitute advice of any kind, investment research or a research recommendation, is in summary form and is subject to change without notice. The performance shown does not take account of any commissions and costs charged when subscribing to and redeeming shares. WHEB Asset Management has exercised reasonable care in preparing this Information including using reliable sources, however, makes no representation or warranty relating to its accuracy, reliability or completeness or whether any future event may or may not occur. This Information is only made available to recipients who may lawfully receive it in accordance with applicable laws, regulations and rules and binding guidance of regulators. WHEB Asset Management LLP is registered in England and Wales with number OC 341489 and has its registered office at 7 Cavendish Square, London, W1G 0PE. WHEB Asset Management LLP is authorised and regulated by the Financial Conduct Authority with Firm Reference Number 496413.

FP WHEB Sustainability Impact Fund

FundRock Partners Limited (formerly Fund Partners Limited) is the Authorised Corporate Director of the Fund and is authorised and regulated by the Financial Conduct Authority with Firm Reference Number 469278 and has its registered office at 6th Floor Bastion House, 140 London Wall, London, EC2Y 5DN. The state of the origin of the Fund is England and Wales. The Representative in Switzerland is ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich, whilst the Paying Agent is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, 8024 Zurich . The relevant documents such as the prospectus, the key investor information document (KIIDs), the Articles of Association as well as the annual and semi-annual reports may be obtained free of charge from the Representative in Switzerland.

WHEB Sustainable Impact Fund

The Manager of the Fund is FundRock Management Company S.A., authorised and regulated by the Luxembourg regulator to act as UCITS management company and has its registered office at 33, rue de Gasperich, L-5826 Hesperange, Grand-Duchy of Luxembourg. The Representative in Switzerland is ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich, whilst the Paying Agent is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, 8024 Zurich. The relevant documents such as the prospectus, the key investor information document (KIIDs), the Articles of Association as well as the annual and semi-annual reports may be obtained free of charge from the representative in Switzerland. The state of the origin of the Fund is Ireland. The Fund is registered for distribution to professional investors in Austria, France, Germany, Italy, Luxembourg, Norway, Singapore, Sweden and the United Kingdom, and is registered for offering to retail investors in Switzerland, Denmark and the Netherlands. The Fund is also available for professional investors in Belgium and Hong Kong. It is not available to investors domiciled in the United States.

WHEB Environmental Impact Fund

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