Korian: M&A Integration Risk Largely Behind Retirement Home Leader

Jean-Pascal Rolandez of The L.T. Funds presented his in-depth investment thesis on Korian (France: KORI) at European Investing Summit 2018.

Thesis summary:

Korian (France: KORI) is one of two European leaders in retirement homes (the other being Orpea). Since its inception in 2003, Korian has amalgamated retirement home and rehabilitation centers companies in a fragmented market — first regional French, then national, and now continental European businesses, resulting in Korian becoming the number-one player in Germany, France, Belgium, and the number-two player in Italy. Sales exceed €3.3 billion, with close to 50,000 employees in 750 establishments. The market capitalization is ~€2.5 billion, with a float of 60%. The sector is growing organically at 3% annually. This rate is likely to accelerate after 2025 as baby boomers pass the age of 80 years. The private sector (~50%) is consolidating and benefiting from the public sector not coping with demand. Over the last four years, Korian has been integrating a heavy acquisition program that started five years ago, hence a stagnant share price. However, with this operational risk largely behind the company, Korian’s profitability should benefit from leveraging operationally and deleveraging financially. Excluding property portfolios, Korian trades at a ~33% discount to Orpea and only 7.6x 2019E EBITDA for a business growing internally at ~6% per annum and deleveraging by ~3% of equity value.

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About the instructor:

Jean-Pascal Rolandez is the manager of The L.T. Funds, a Geneva-based investment firm focused on a buy and hold strategy based on a limited number of European stocks with a 5+ year investment horizon. Jean-Pascal has more than 25 years of equity investment experience and has founded the first investment club at the leading French business school ESSEC. Prior to establishing The L.T. Funds, Jean-Pascal held various executive positions at BNP Paribas for 22 years, including as Paribas’ French equity strategist.