Orpea SA Stock: Can The Company Retain Its Glory? (OTCMKTS:ORPEF)

Orpea SA (OTCPK:ORPEF) is a France based comprehensive healthcare network founded in 1989 and expanded around the world since, incorporating 116,514 beds across 1,156 facilities with over 70,000 employees in 23 countries as of year-end 2021. The Company is the leading network in Europe for dependency care, which includes nursing homes, assisted living, post-acute and rehabilitation hospitals, mental health hospitals, and home care services.

The Company faced a major setback in January this year after allegations of mistreatment of elderly residents in its nursing homes across France. The French newspaper Le Monde on 1/24/2022, published excerpts from a book titled “Les Fossoyeurs” (The Gravediggers), representing the author Victor Castanet’s recorded findings of “malfunctions and abuse” that resulted allegedly from cost-cutting measures by the Company. At the heart of the book seems to be the inspection report of Les Bords de Seine by the Ile-de-France regional health agency (ARS) in 2018. Orpea formally rejected the Le Monde accusations as outrageous and prejudicial, with its press release of the same date.

“ORPEA operates in a sector that is subject to strict regulations and regular controls by the public authorities. It would obviously not have been able to ensure its development in France and internationally if it had not scrupulously respected its obligations.”

“Every year, the Group conducts a satisfaction survey among its residents and families, carried out by an independent external organization. The latest results show an average recommendation rate of 95%.”

In an immediate follow-through action the Company on 1/30/2022, terminated the CEO Yves Le Masne after 28 years of service to the group, and appointed Philippe Charrier as the group’s Chairman and CEO. The former CEO is also alleged to have sold shares worth €600,000 in July 2021, three weeks after the Company management was informed about the publication of the book. However, he refutes the allegation as the sale was part of his routine transactions and represented only a third of his holding in the Company. The Company also appointed two world-renowned firms, Grant Thornton, and Alvarez & Marsal, to conduct an independent review and audit, findings of which will be released to the stakeholders as well as to the market.

Abuse or Prejudice?

The issue snowballed into a major political issue with Le Monde stringing quite a few articles under a dedicated category over the past two months, one of which postulated if old age care might be an upcoming presidential campaign issue. Regulatory agencies charged with routine inspections have been accused of negligence. Presidential candidates of the LFI and PCF have demanded a parliamentary commission of enquiry, while a former top official alleged to be the “zealous executor” of an “Orpea system” refuted any malpractice. There is also a debate going on about the ghettoization of the elderly, questioning the role of society in indirectly abetting abuse.

The series of articles paint a picture of miserly treatment of fragile people by understaffed facilities, with documented meal recipes that allegedly provided less than 500 (actually 496) kcal, and less than 20 grams of protein (actually 19.8) per meal, and extended fasting hours. It may be noted however that assisted living residents usually have more restrictive dietary needs, and dining technology often needs to include this. Three meals a day with as many or fewer snacks, no more than 14 hours between evening meal and breakfast, general low sodium, general diabetic, and mechanical soft food diets according to a diet manual are other usual recommendations for fragile people. Energy requirements can range between 1500 to 2000 kcal per day, and protein requirements between 45 and 60 grams per day, depending on gender, age, weight and activity level.

Other issues have also come to the fore. Three employee unions allege that a dummy fourth union operates with management support. The discontent is understandable in a vast service network with tens of thousands of employees. An investigation carried out by a specialized agency in 2016 was shelved due to lack of evidence. It is presumable that due to the pandemic situation in the past two years human resources, and nutritional and medical inventory movement may have lacked 100% efficiency, and certain personnel may have been rubbed up the wrong way. Mirova, a major shareholder company with 3.9% equity in the Company campaigning for its transformation into a “company with a mission” and/or other disgruntled shareholders could be looking to strengthen their ownership.

Erosion of the Stock

The Company’s stock tumbled nearly 50% followed by further dips over few days after the scandalous news, to settle at around a third of its price before the scandal broke out – from $120.88 on 1/24/2022 to $64.83 on 1/25/2022 to $43.75 on 1/27/2022. Last close on 3/25/2022 was $39.50. The market capitalization presently at $2.52 billion, is slightly above half of its anticipated revenue of approximately $4.7 (€4.285) billion in the financial year 2021 ended December 2021. Cash balance was approximately $1.15 billion, while net financial debt stood at $8.54 billion. The increase in debt is due to the approximately 30% pipeline of under construction facilities compared to the approximately 9% revenue growth. The Company seems to be having a sound financial structure looking at the real estate value of approximately $8.8 billion as of the half-year 2021 ended 6/30/2021. The audited financial results of the Company for the full year 2021 are due April 2022. This could be the right time to grab some shares at the present low levels.

Bottomline

The Company on 3/21/2022, denounced Le Monde’s hurried disclosure of parts of the report made by the IGAS (Inspection Générale des Affaires Sociales) and the IGF (Inspection Générale des Finances), prejudging the yet-to-be-filed final conclusions of the IGF-IGAS inspection mission. Nonetheless, the explosive narrative in an election year about Orpea has brought to the fore quite a few issues. So, could the scandal be part of a bigger game? Only time will tell if Orpea can still proudly use their tagline “La Vie Continue Avec Nous” (Life Goes On With Us).

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