RC2016 Report - Team N

CFA Institute Research Challenge
Hosted in France
Team N

TEAM N EQUITY RESEARCH

This report is published for educational purposes only Healthcare Sector Healthcare Facilities
by students competing in the CFA Institute Research Challenge Euronext Paris
Orpea
Date : 27/01/2017 Current Price : 77,17 Ticker : ORP FP Recommendation : Buy Target Price : 87,49
Market Profile
SUMMARY
Closing Price : 77,17
52 Week High-Low : 81,39 - 64,08 Orpea is a European leader in long-term care of aged people which are heavily dependent,
the company operates more than seven-hundred facilities including nursing homes,
YTD Return : 0,53%
rehabilitation hospitals, psychiatric hospitals and also provides home-care services.
Market Capitalization : 4,65B
Population ageing and sector structural shift will offer Orpea the occasion to benefit from
Diluted Shares Out. : 60 200 000 impressive growth opportunities. Since 2014 the company entered a virtuous cycle of
Average Volume (3M) : 113 960 geographic diversification with the international part of its network now getting close to
Dividend Yield : 1,28% 60%, the firm recently restructured its organization in order to facilitate international
Insider Holdings : 6,88% expansion while maintaining strong financial performances. Orpea conducts an ambitious
Float (%) : 66,6% real-estate strategy with a property portfolio independently valued at 3,6 billion euro thus
PER : 31,9 providing financial security and the group aims to increase its ownership ratio to secure
medium and long-term profitability. We issue a buy recommendation with a 84,97 price
Forward PER : 26,3
target, our investment thesis is mainly supported by:
EV / EBITDA : 17,8
EV / Revenue : 3,00
Growth Opportunities - In recent years Orpea displayed an impressive ability to
Valuation rapidly expand its network, we believe that Orpea is well-suited to continue
acquisitions of new platforms because the group now has a strong knowledge of
Estimated Value Weights
the different regulatory systems in Europe and its reputation will help the group
DCF : 91,69 50%
to gain the authorities trusts in new markets. With strong pipeline, quickly
DDM : 89,08 25% ageing population and competitors that are likely to be unable to meet capital
Multiples : 77,48 25% requirements organic growth should remain strong for a few years.
Price Target : 87,49 Valuation - Our Discounted Cash Flow, Dividend Discount Model and Relative
12M Return : 13,37% Valuation analysis suggest an intrinsic value of 87,49 per share implying a
potential upside of 13,37% from the current trading price of 77,17 as of January
4 27. We conducted a Monte Carlo simulation for both our DCF and DDM models,
60% of the 30 000 outcomes resulted in a buy recommendation. Our valuation
3 models suggest that the various growth opportunities and Orpeas competitive
advantage arent fully reflected in the share price yet.
Economic Moat - Orpea operates in a highly regulated environment with
2
complex and different regulatory frameworks which require strong knowledge to
obtain authorization thus making it hard for new players to join the market,
1 moreover potential new comers havent incentives to enter the market when
the great majority of the demand is already served and switching costs are high.
This allows Orpeas competitive advantage to be sustainable.
0
Investment Risks Main risks include: operational malpractice resulting in
12/11
06/12
12/12
06/13
12/13
06/14
12/14
06/15
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06/16
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mistreatment or epidemic, failure to successfully integrate acquisitions, increase

in interest rates thus slowing the upcoming external growth and changes in the
ORP KORI SBF 120 different regulatory frameworks lowering barriers to entry.
Key Metrics 2013 2014 2015 2016E 2017E 2018E 2019E
Revenue (in million) 1 607,92 1 948,58

2 391,60 2 834,05 3 202,47 3 576,09 3 945,62
YoY Growth (%) 12,50% 21,19% 22,74% 18,50% 13,00% 11,67% 10,33%
Operating Margin 18,45% 17,28% 14,79% 14,60% 14,80% 15,00% 15,17%
Net Income Margin 5,69% 5,00% 6,08% 6,21% 6,22% 6,41% 6,53%
Diluted E.P.S 1,72 1,76 2,43 2,92 3,31 3,81 4,28
Fixed Charge Coverage 2,05 1,93 1,81 1,91 2,07 2,21 2,36
Financial Leverage 4,77 5,58 5,78 5,86 5,78 5,66 5,49
LT Debt to Equity 2,18 2,91 3,34 3,28 3,15 2,98 2,79
R.O.E 6,47% 6,50% 8,03% 9,15% 9,72% 10,43% 10,91%
R.O.I.C 4,32% 4,04% 3,21% 3,62% 3,85% 4,17% 4,46%
*Financial informations are adjusted for off-balance sheet items such as Operating Leases Commitments
Figure 1 : Revenue ( in Million) BUSINESS DESCRIPTION
Orpea (ORP) was founded in 1989 by Doctor Jean-Claude Marian and is currently
4 000 headquartered in Puteaux, France. Orpea became public in 2002 after operating as a
3 000 private company for 13 years, the company is now a European leader in mid-term and
long-term care for heavily dependent people and operates 733 facilities across 10
2 000
countries including nursing homes, rehabilitation facilities and psychiatrics clinics. In
1 000 recent years Orpea displayed an impressive ability to expand its international network
0 while delivering strong financial performances, France amounted for 60% of total
revenues during the first half of 2016 versus 83% in 2013 and international beds amount
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
for 56% of the European Pipeline.
Sources :Company, Team Estimates Orpea operates in a sector where quality of services, location and brand image are critical
factors of success, we believe that due to its level of expertise, geographic diversification
and real-estate strategy Orpea will be able to maintain its competitive edge.
Figure 2 : S1 2016 Revenue by Country
REAL-ESTATE STRATEGY
Orpeas real-estate portfolio is independently valued at 3,6 billion including 3,2 million
of real-estate under service and 447 million of real-estate under development,
valorisation of the real-estate portfolio is made with a conservative yield of 6,3% while
current market yield is close to 5%. Orpeas real-estate is mainly located in France where
properties account for 79% of total portfolio. The group has an ambitious real-estate
strategy and aims to raise the ownership ratio of its facilities by 14% reaching 50% in the
medium-term. Orpeas real-estate portfolio is a strategic asset, it offers financial security
as well as operational flexibility and secure the long-term profitability of the group. Orpea
currently aims to acquire quality real-estate situated in dynamic regions as the first
selection criterion by residents and families is the location of the facility according to
DRESS a governmental agency. This goal is supported by the low interest rates
environment and Orpeas effective hedging of debt. Orpeas real-estate strategy plays an
important role in our valuation model as the flexibility and cost-advantage it offers is part
of Orpeas competitive edge.
Source : Company
This strategy is reinforced by the upcoming change in IFRS 16 which will include operating
leases commitments on the balance sheet. The ownership of properties will be preferable
Figure 3 : 2015 EBITDAR Margin by Country because an operating lease will result in a permanent increase of debt despite recurring
payment while the ownership will allow the group to decrease debt following loan
35% repayments.
30%

25% STRONG EXPERTISE AND CUSTOMERS SATISFACTION
20% Orpea has a strong medical expertise, the group has its own medical department which is
15% in charge of developing new procedures or therapies, recently the group and Nice
10% University wrote the first study relating to the benefits of light on the quality of life of
5% people suffering from neurodegenerative diseases. The ability to improve medical
0% treatment as a result of efficient medical research and cooperation with universities is
likely to help Orpea reinforce its competitive advantage over competitors. The
acknowledgment of Orpeas expertise plays an important role in Orpeas ability to deliver
strong performances as the quality of services is an important criterion to the residents
and their families. Orpea also created a code of ethics by asking different teams to choose
Sources : Company the most important values that ensure the well-being of residents, the majority of
employees then attend reviews regarding key values, this original approach help workers
Table 1 : S1 2016 Facilities Ownership by to assimilate the code of ethics. A strong expertise and an applied code of ethics reduce
Country the probability that mistreatments which would have a strong impact on brand image
occur.
Country Ownership Ratio
France 49% The group recently promoted the results of a survey carried in 6 countries that has shown
that the residents and their families have a satisfaction rate of 91,9% and 93,3% of them
Belgium 41% would recommend Orpeas services to their entourage. The group conducts internal
Spain 36% assessment within all facilities and is subject to external assessment, Orpea also received
Italy 36% several awards in 2015: The Swiss platform Senevita was ranked third in the health and
social affairs category in the national great place to work awards, Spanish and Austrian
Switzerland 5%
facilities received new certifications awarded by regulators and Silver Care, a German
Germany 9% platform was ranked first care home group for quality based on ratings overseen by the
Austria 39% Ministry of Health and Social Business.
Czech Republic 0%

Poland 86%

Source : Company
Figure 4 : Number of people aged over 80 GEOGRAPHIC DIVERSIFICATION: A SILVER PATH
by country Orpea has had an impressive growth of its network in recent years, the scale of operations
has been multiplied by 4,6 during the last ten years now including more than seven
hundred facilities and 74000 beds. The group currently operates in ten countries against
four ten years ago and 56% of the network is international as of June 2016, moreover
international beds amount to 67% of the European network.
We believe that Orpea is well-suited to continue the acquisitions of new platforms while
maintaining its operational efficiency because the group now has a strong knowledge of
the different regulatory systems in Europe and its reputation will help the group to gain
the authorities trust in new markets. Orpea also created a team of thirty persons
dedicated to international expansion and redefined its IT strategy and operating
procedures in order to facilitate international growth and acquisition process.
Source : Eurostat As summarized in the table below, Orpea is already well implemented in countries where
the company is able to deliver strong margins with France, Switzerland and Germany
representing three quarters of the beds, in Switzerland and Germany pipeline amounts for
17% of beds suggesting Orpea wants to enforce its presence in these countries. We also
observe the strong pipeline in countries with the highest expected CAGR of people aged
over 80 between 2020 and 2080. This long-term growth is relatively secured because aged
peoples care needs arent affected by economic cycles and demographic forecasts are
reliable contrarily to economic forecasts.
CAGR 2020-2080 EBITDAR Margin (%) Beds (%) Beds under development (%)
Switzerland 1,90% 0,33 3,60% 17,00%
Figure 5 : Capital Structure
Czech Republic 1,70% N.S 0,40% 37,00%
Belgium 1,69% 0,198 9,80% 25,00%
Austria 1,68% 21,50% 7,30% 3,00%
Poland 1,63% 14,20% 0,90% 0,00%
CPPIB; France 1,28% 28,30% 43,50% 9,00%
15% Jean-Claude European Union 1,28% 26,70% 100,00% 12,00%
Marian 7% Italy 1,14% 12,00% 2,30% 34,00%
Spain 1,02% 23,80% 9,80% 0,00%
FPP Invest
6%
Germany 0,88% 26,60% 22,40% 17,00%
Float 67%
Sofina 5%
MANAGEMENT & GOVERNANCE
Orpeas founder and Chairman Doctor Jean-Claude Marian contributed largely to the
companys success, as a medical doctor he had strong knowledge of the demands driver
and knew how to align Orpeas strategy to take advantage of the industry exceptional
Source : Company growth opportunities. Yves Le Masne has been the Chief Executive Officer of Orpea since
2011, he joined the company in 1993 as a financial controller and served as Chief Financial
Officer and Chief Operating Officer, he is also a member of the board.
The chairman doctor Jean-Claude Marian owns 7,1% of the share capital and 10,5% of the
voting rights thus providing strong capital backing, in 2013 he sold an important part of its
share to CPPIB a Canadian pension fund with 300 billion dollars in assets under
management which is now the biggest shareholder with 14,7% a participation. There are
an established audit committee and a remuneration committee, both are composed
mainly of independent members. Under the Florange Law shares registered for more
than two years are granted double voting rights, long-term shareholders thus have more
power than new comers and it may favours long-term policy but it may also lead to cushy
Figure 6 : International Network as a % of
insiders relationships and weaker governance. Minority shareholders interests are
Total Network
protected with rights to call special meeting. Overall we see Orpeas governance as highly
rated as explained in Appendix B.
60%
50%
INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING
40%
Several factors will offer growth opportunities in both short-term and long-term with the
30% most preeminent being the changing demography in the European Union with the
20%
proportion of the elderly becoming larger due to the increasing life expectancy and the
changing age structure. Sector structural changes will also offer growth opportunities with
10% the repartition of market shares between public and private operators being expected to
0%
change in several countries due to an inadequate supply combined with public operators
2011 2012 2013 2014 2015 2016 investment capacity being squeezed by budgetary constraints. We examine the different
factors that influence or will influence sectorial dynamics:
Source : Company

Figure 7 : Population ageing DEMAND DRIVEN BY POPULATION AGEING
In most countries around the world, progress in medicine and improved living standards
80 3,0% have resulted in longer life expectancy resulting in an ageing population, this is especially
true in the European Union where population ageing is a trend that started decades ago.
60
2,0%
40 According to demographic forecasts, the EUs population will continue to age: by 2080,
1,0% nearly one person in eight will be over 80. Countries that will see the highest share of
20
people aged 80 or over are Portugal, Germany and Poland. According to Eurostat by 2050
0 0,0% the number of people aged 80 or over in European countries will double reaching 57,3
2015
2020
2030
2040
2050
2060
2070
2080
million and the number of people aged 90 or over who are the most heavily dependent
will more than triple reaching 13 million.
People aged 80 or over (in Million) The ageing of the population results in an increase in the number of dependent people
C.A.G.R. requiring help or care. Dependency begins to increase rapidly from the age of 80 to reach
the critical threshold at 85, people with the heaviest dependence combining mental and
Source : Eurostat physical dependences are most numerous among those aged 85 and over, this is
important given the fact that Orpea specializes in heavy dependency care and residents
are 88 years old on average.
Figure 8 : Five Forces Analysis
Orpea could also profit from growth outside of Europe, according to the World Bank the
Bargaining number of people aged over 65 will grow by 117% in emerging-market countries by 2050.
power of
buyers Emerging markets could be a source of growth in the years with China being a strong
5 candidate, however the fluctuating regulation of these markets makes expansion
4 uncertain. Orpea recently opened a retirement home pilot in Nanjing (China), while this
3 Bargaining unique facility of 140 beds will have a marginal impact on Orpeas performance it may
Industry rivalry 2 power of
1 offers the possibility to gain the Chinese authorities trust and could help open the doors
suppliers
0 of a new market with a strong potential.
STRATEGIC POSITIONING
Threat of Threat of new In recent years several European countries promoted home-care services and more than
substitutes entrants three quarter of the people aged over 80 arent dependent enough to justify being in a
retirement home and can stay at home with more or less support. These trends conducted
Source : Team Estimates Orpea to diversify its offer and the group now offers home-care services as well as
complementary offers such as serviced residence offering more autonomy to residents
who do not need the full-time assistance of a dedicated team. Orpea also focus its efforts
Figure 9 : S.W.O.T. Analysis towards residents who are the most dependent such as people suffering from Alzheimer
or other neurodegenerative diseases because they cannot choose alternative services,
specializing in care of people suffering from Alzheimer is strategic because it is the main
Strengths
5 reason for entering a retirement home and at least 35% of people in retirement home
4 suffer from Alzheimer or other similar diseases. Orpea has been working to improve the
3 well-being of people suffering from neurodegenerative diseases and successfully
2 promotes its results by publishing scientific papers and participating in conference thus
1 strengthening brand image.
Threats 0 Weakness
AN INELASTIC AND SOLVABLE DEMAND
Orpeas activity isnt affected by changes in the economic cycle as consumers cannot
postponed their consumption and demand will grow mechanically with changing age
structure of the population, during the 2008 crisis Orpeas activity wasnt affected by the
Opportunities severe recession, revenue grew by 29,0% in 2008 and 20,1% in 2009. However now that
Orpea operates with a bigger scale a financial crisis affecting liquidity could affect funding
Source : Team Estimates of potential acquisitions thus slowing external growth.
Depending on the country public and private health insurance cover between 20% and
50% of the costs, most of the time patients and their families just paid for the
Table 2 : Private Sector Market Shares accommodation services and arent charged for costs related to care and dependence.
Moreover customers are far from having solvency problems, as an illustration in France
Country Private Sector Market Shares
where Orpea delivers 60% of its revenue the average wealth of people over 85 is 135000
Belgium 33% (Source IGAS) with the cost of a nursing home averaging 44000 for 20 months at 2200
France 20% per month. Income of people aged 80 or over is expected to increase by 32% between
Spain 30% 2010 and 3030 according to a report by Jean de Kervasdou, professor at CNAM.
Italy 20%
Germany 41% INDUSTRY SUPPLY
Austria 10% In all European countries the market is strongly dominated by public and non-profit
operators, depending on the country private sectors market shares are comprised
Switzerland 5%
between 5% and 40%. The only private operators operating with a large scale
Source : Company are Orpea and Korian, there is also a lot of small independents operators with many of
them facing ageing structure. Because of budgetary constraints in several European
countries public operators will have trouble meeting the capital requirements needed to
Table 3 : Orpea 2015 Market Share
build new beds and catch the growth of the market thus offering the possibility for private
Country Orpea Market Share operators to increase their market shares. With a highly fragmented market including a lot
of small for-profit operators that are likely to have trouble meeting the capital
Belgium 4,04%
requirements needed to face the renovation cost and the strong increase in demand
France 5,03% Orpea will be able to strategically select targets for consolidation. In France the National
Spain 2,10% Solidarity Fund For Autonomy estimates that much of existing facilities are unsuitable for
caring dependents people, it estimates that nearly 20% of beds will need to be
Italy 0,29%
modernized with a total investment needed of 11,7 billion euros.
Germany 1,59%
Austria 6,37% Supply is considered as inadequate to meet the current and coming demand, the number
of beds per 100 people aged over 80 has been decreasing sharply since the mid-nineties
Switzerland 2,40% because demand has been increasing faster than supply, for example in France there were
Source : Company 166 beds for 1000 peopled aged over 80 versus 122 in 2010. Large players such as Orpea
and Korian will profit from the incapacity of small and public operators to meet the capital
requirements needed to catch market growth.
Figure 10 : Percentage of Mature Beds
95% HIGH BARRIERS TO ENTRY
Orpeas activity is highly supervised and the group chooses to operate in country with
90% complex regulatory framework and heavy regulation to take advantage of the extremely
85% high barriers to entry. Regulatory frameworks are different in each country and
80% sometimes different in each region within countries, strong knowledge is required to
obtain authorization thus making it hard for new players to join the market. The high
75%
capital requirements also contribute to elevate barriers to entry, moreover potential new
70% comers havent incentives to enter the market when the great majority of the demand is
65% already served and switching costs are high. High barriers to entry do not result in high
barrier to exit as the market is rapidly growing and operators in difficulty are easily
2011
2012
2013
2014
2015
2016
2017
2018
integrated by large players.
Sources : Company, Team Estimates

INVESTMENT SUMMARY
We issue a Buy recommendation on Orpea (ORP) with a target price of 87,49 which is
Figure 11 : Diluted E.P.S obtained from a Discounted Cash Flow Model, a Dividend Discount Model and a Relative
Valuation analysis using multifactorial models. Our Buy recommendation is also supported
4,5 by the fact that Orpea operates with a wide economic moat that will allow competitive
4,0 advantage to be sustainable, the company will then be able to delivers high Return on
3,5
Capital thus creating economic value for its shareholders. Below we highlight the different
points that support our recommendation:
3,0
2,5 Wide Economic Moat - Orpea operates in a highly regulated environment with complex
2,0
and different regulatory frameworks which require strong knowledge to obtain
authorization, moreover the great majority of the demand is already served and switching
1,5
costs are high.
Operational Quality - Orpea has been able to deliver strong financial performances and
we expect this trend to continue because of the ambitious real-estate strategy that will
Sources : Company, Team Estimates secure profitability and enhance flexibility, the recent restructuration effort will enhance
Orpeas ability to continue its acquisitions strategy while maintaining margins and Orpeas
acknowledged expertise in heavy dependency care confers a competitive advantage in a
Figure 12 : Long-Term Debt to Equity crucial segment of the market.
3,5 Growth Opportunities - Orpea will be able to profit from the ageing of the population, the
share of the population aged 80 and over is set to more than double in nearly all European
3,0
countries by 2050 and the number of people aged 90 or over who are the most heavily
dependent will more than triple reaching 13 million. Short term perspectives look bright
2,5
too because Orpea is well-suited to continue the acquisitions of new platforms while
maintaining its operational efficiency because Orpea now has a strong knowledge of the
2,0
different regulatory systems and an organization that will facilitate international
1,5 development, moreover strong pipeline sectorial trends secure organic growth.
2013 2014 2015 2016E 2017E 2018E 2019E
Valuation: We issue a Buy recommendation with a target price of 87,49, we conducted a
Sources : Company, Team Estimates Monte Carlo simulation for both our DCF and DDM models, 60% of the 30 000 outcomes
resulted in a buy recommendation. We believe that current undervaluation may be
caused by investors favouring more cyclical investments at the expense of defensive
stocks given the bull market that began in recent months. Also investors may have not
fully realized the magnitude of both growth opportunities and Orpeas competitive edge.
A complementary explanation of Orpeas underperformance may be technical, after years
of outperformance the stock entered in a consolidation phase waiting for catalysts to exit
the trading range.
Figure 13 : Debt breakdown by type
Catalyst: The next earnings announcement from Orpea is expected the week of March 28,
50% given the strong performance Orpea realised in the first half of 2016 revenue guidance will
40% likely be beaten. According to data compiled by Bloomberg, Orpeas adjusted Earnings per
Share beat 7 of 8 analysts estimates last period, positive surprise could help narrow the
30% gap between price and intrinsic value.
20%
CONCERNS:
10% Our main concerns regarding Orpea is the firm heavy financial leverage, as we explain in
the Financial Analysis section, current credit situation is sustainable but a degradation of
0%
financing conditions could make external growth uncertain.
LT Borrowings FINANCIAL ANALYSIS

Ratios 2013 2014 2015 2016E 2017E 2018E 2019E
LT Capital Leases Profitability
Operating Profit Margin 18,45% 17,28% 14,79% 14,60% 14,80% 15,00% 15,17%
LT Operating Leases Net Profit Margin

Return On Assets
5,69%
1,36%
5,00%
1,16%
6,08%
1,39%
6,21%
1,56%
6,22%
1,68%
6,41%
1,84%
6,53%
1,99%
Return On Invested Capital 4,32% 4,04% 3,21% 3,62% 3,85% 4,17% 4,46%
Sources : Company, Team Estimates Return On Equity

Liquidity
6,47% 6,50% 8,03% 9,15% 9,72% 10,43% 10,91%
Current Ratio 0,67 0,72 0,78 0,81 0,81 0,80 0,80

Cash Ratio 0,33 0,39 0,34 0,36 0,33 0,31 0,29
Activity
Receivables Turnover 17,81 21,09 20,62 20,36 19,92 19,81 19,69
Days of Sales Outstanding 20,49 17,31 17,70 17,93 18,33 18,43 18,53
Figure 14 : EBIT Margin Days of Payables Outstanding

Days on Inventories Outstanding
52,80
1,59
52,50
1,49
46,70
1,43
43,00
1,50
42,11
1,54
41,64
1,56
41,18
1,57
Cash Convertion Cycle -30,72 -33,70 -27,57 -23,58 -22,25 -21,65 -21,07
Total Asset Turnover 0,24 0,23 0,23 0,25 0,27 0,29 0,30
Fixed Asset Turnover 0,42 0,40 0,37 0,39 0,42 0,43 0,45
19%
Financial Leverage
18% Long-term Debt to Assets 0,46 0,52 0,58 0,56 0,54 0,53 0,51
17% Long-term Debt to Equity 2,18 2,91 3,34 3,28 3,15 2,98 2,79
Debt to Equity 2,47 3,26 3,66 3,61 3,46 3,28 3,07
16% Financial Leverage 4,77 5,58 5,78 5,86 5,78 5,66 5,49
15% Interest Coverage 3,95 4,02 4,28 4,29 4,63 5,00 5,42
14% Fixed Charge Coverage 2,05 1,93 1,81 1,91 2,07 2,21 2,36
13%
12% Financial ratios displayed above highlight Orpeas past economic performances and
summarize our assumptions concerning the near future. To computes these ratios we
have adjusted financial statements to show the true economic reality of operating lease
expenses and operating lease commitments (an off-balance sheet item), it is especially
Sources : Company, Team Estimates important given the important proportion that operating lease commitments would take
in the Balance Sheet, in the past three years operating lease commitments amounted for
42% of the Long-Term Debt on average. Between 2011 and 2015 operating lease
commitments as a proportion of the balance sheet increased from 14,81% to 25,23%. The
distortive effect towards the Income Statement isnt negligible either, for fiscal year 2015
costs related to operating lease expenses amounted 252 million, recognition of operating
Figure 15 : R.O.C vs W.A.C.C. lease commitments as a Balance-Sheet Item would have increased Operating Income by
30,83 million after taking note of the amortization effect.
5%
MARGINS SQUEEZED BY ACQUISITIONS
In 2015 costs related to acquisitions squeezed Operating margins, this trend will likely
4% continue in 2016 because of the several acquisitions Orpea realized during the first
semester. There is also one key point that isnt displayed in non-adjusted financial
statements, during 2015 Orpeas acquired operators massively using operating leases, as a
3% result present value of operating lease commitments increased by 48% to reach 3 billion
and depreciation of operating lease assets now amounts for 221 after increasing by 38%
thus having a strong negative impact towards operating margin that is incognito. We
2% forecast this negative trend to reverse because Orpea recently restructured its
2013 2014 2015 2016E 2017E 2018E 2019E organization by establishing new procedures for Business Units and aligning its IT system
with the external expansion strategy thus allowing a better monitoring of the different
Return On Capital W.A.C.C.
facilities and making easier the consolidation process for the newly acquired operators
reducing the negative impact towards margins. We also expect that the efforts realized to
Sources : Company, Team Estimates improve operational efficiency will allow Orpea to maintain a competitive edge over its
main competitor Korian.

ECONOMIC VALUE ADDED ANALYSIS
Figure 16 : Credit Ratios ( in Millions) Economic Value Added Analysis
As of December 31 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E
NOPAT 133,1 158,3 191,9 232,4 254,6 275,33 312,46 350,41 388,27
6 WACC 3,65% 3,65% 3,65% 3,65% 3,65% 3,65% 3,65% 3,65% 3,65%
Capital 3 656,6 4 091,9 4 439,1 5 757,1 7 920,4 8 616,2 8 824,0 9 015,9 9174,38
5 Opportunity Cost 133,5 149,4 162,0 210,1 289,1 314,5 322,1 329,1 334,87
4 Economic Value Added -0,4 8,9 29,9 22,3 -34,5 -39,2 -9,6 21,3 53,41
Return On Invested Capital 3,64% 3,87% 4,32% 4,04% 3,21% 3,20% 3,54% 3,89% 4,23%
3
2 The analysis reveals that once EBIT and Capital are adjusted for operating leases Orpea
1
has had trouble to create economic value in recent years. We are confident that Orpea
2013 2014 2015 2016E 2017E 2018E 2019E will be able to create economic value in the near future as the proportion of the mature
network increase and the group will benefit from its restructuration efforts and the group
Interest Coverage will reach critical size (3,000 beds) in countries where Orpeas presence is recent.
Fixed Charge Coverage
CREDIT CONCERNS?
As we highlighted above in our ratios analysis, Orpeas financial leverage is heavy with a
debt to equity ratio equal to 3,6 and a Financial Leverage of 5,7. The Fixed Charge
Coverage Ratio is equal to 1,8 which while being relatively low isnt particularly concerning
Figure 17 : R.O.E. Decomposition because Orpeas activity isnt affected by changes in the economic cycle as consumers
cannot postponed their consumption and demand will grow mechanically with the
12% 7 changing age structure of the population. The group also hedges three quarter of its net
10% 6 debt against the risk of changes in interest rates using swaps, degradation of financing
8% 5 conditions wouldnt have an immediate impact on Orpeas activity but could make
4 upcoming acquisitions more expensive thus slowing external growth.
6%
3
4% 2 It is also important to note that 80% of financial debt (excluding operating leases) has
2% 1 been contracted in order to purchase real-estate, debt is then backed by high-quality
0% 0 tangible assets with a value that is expected to remain at least relatively stable. Moreover,
Debt Covenants are still met with a comfortable margin indicating that Orpea should be
able to fund coming acquisitions easily thus not obstructing the upcoming growth.
Increase in operating lease commitments in 2014 and 2015 is partly explained by
acquisitions of operators using operating leases instead of capital leases. However it may
Net Profit Margin Return On Equity
be possible that the strong increase in operating lease commitments which are off-
Financial Leverage balance sheet items as a percentage of debt in recent years is explained by the
management will to hide financial leverage
DUPONT ANALYSIS
Dupont Analysis 2013 2014 2015 2016E 2017E 2018E 2019E
Figure 18 : Cash Conversion Cycle Profit Margin 5,69% 5,00% 6,08% 6,21% 6,22% 6,41% 6,53%
Asset Turnover 0,24 0,23 0,23 0,25 0,27 0,29 0,30
0
Financial Leverage 4,77 5,58 5,78 5,86 5,78 5,66 5,49
-5 2013 2014 2015 2016E2017E2018E2019E
Return On Equity 6,47% 6,50% 8,03% 9,15% 9,72% 10,43% 10,91%
-10
Our DuPont Analysis show that Orpeas Return On Equity has been increasing during
-15
recent years and it is mainly explained by the increasing Financial Leverage and an
-20 increase in profitability with the asset turnover being stable during the period. The
-25 increasing profit margin in 2015 is due to the reduction of the cost of debt that exceeds
-30 the effect of the declining operating margins. We forecast that the Return On Equity will
continue to improve as margins increase and leveraging continue to finance upcoming
-35
acquisitions.
-40
OPTIMISTIC OUTLOOK
Country CAGR 2015-2030 Beds in % EBITDAR Margin %
Czech Republic 3,76% 0,43% N.S
Table 4 : Intrinsic Value Estimates Switzerland 3,12% 3,60% 33,00%
Austria 2,74% 7,30% 21,50%
Poland 2,33% 0,94% 14,20%
France 2,10% 43,48% 28,30%
Germany 2,36% 22,36% 26,60%
Italy 1,96% 2,30% 12,00%
Belgium 1,71% 9,83% 19,80%
Spain 1,59% 9,76% 23,80%
As we highlighted in the Business Description section, Orpea is on track to profit from
Source : Team Estimates impressive growth opportunities in the long-run, but short-term outlook looks bright too.
The table above shows that Orpeas geographic repartition is well-suited to profit from
high margin countries with France, Switzerland and Germany representing three quarters
Figure 19 : DCF Statistics of the beds, in Switzerland and Germany pipeline represents 17% of beds suggesting
Orpea wants to enforce its presence in these countries. Orpea recently opened its first
facilities in Czech Republic, ORP should at least reach its critical size (3000 beds)
suggesting that the group will make several acquisitions in this highly strategic country.
VALUATION
To estimate the intrinsic value of Orpea we used three valuation methods including a
Three-Stage Discounted Cash Flow model, a Three-Stage Dividend Discount Model and a
Relative Valuation approach including multifactorial models and a multiple approach.
These valuations resulted in a buy recommendation with a price target of 87,49 per
share, we also conducted a sensitivity analysis using Monte Carlo Simulation. Below we
Source : Team Estimates summarize the different inputs and explain the different methodology used for our
valuation models:
DCF MODEL
We view a Discounted Cash Flow Analysis as the best way to estimate Orpeas intrinsic
Table 5 : Unlevered Beta Calculation value, and therefore our DCF Model is overweighed in calculation of intrinsic value. Given
Regression Beta Market Debt / Equity Marginal Tax Rates Orpea position in the life cycle we used a Three-Stage Discounted Cash Flow Model, we
SPI 0,67 112% 20,00% made the assumption that the high-growth phase will last 5 years then Orpea will know a
KORI 0,72 200% 33,33%
CAPIO 0,85 115% 22,00% transition phase before reaching stable growth phase in 10 years. The DCF model is driven
ORP
ATT
0,41
N.S
155%
--
33,33%
--
by Free Cash Flow to the Firm because due to Orpea position in corporate life cycle capital
MDC 0,84 42% 20,00% structure is expected to change significantly. We conducted a base case scenario and
RHC 0,74 41% 25,00%
Average 0,72 110% 25,61%
made assumptions using historical performances data, economic and demographic
projections and conclusions from our analysis of Orpeas competitive positioning. We
Unlevered Beta : 0,41
Std Error of Bottom-Up Beta 0,073
detail the inputs to which our valuation is most sensitive below:
Source : Bloomberg, Team Estimates

WEIGHTED AVERAGE COST OF CAPITAL
To increase accuracy in our cost of equity estimate we used a Bottom-Up Beta approach,
Bottom-Up Beta construction is described in Appendix I, we think a bottom-up beta is a
preferable approach over single regression beta because the standard error of beta is
significantly lower than with a single regression beta and a bottom-up beta can be easily
Figure 20 : YoY Revenue Growth
adjusted to reflect change in the firm fundamental risk. In our analysis we also included
off-balance sheets items such as operating lease commitments in Capital in order to
25%
obtain a fair economic representation of capital structure in the peer group. Equity Risk
Premium was computed using an implied Equity Risk Premium for a mature market and
20% adding the different weighted Country Risk Premiums of the countries Orpea operates in.
We also computed a second WACC for the terminal period to reflect the normalization of
15% the risk-free rate as we think it is unlikely that the E.C.B. refinancing rate will stay close to
0% and non-conventional monetary policies such as quantitative easing are not meant to
10% be employed in the long-run. To compute the terminal period WACC we also adjusted
Orpea credit spread to reflect the fact that the company will become less risky as it
matures and we made the assumption that the capital structure will reach its target thus
5%
modifying Orpea levered beta and the weights of each component in Capital.
2013 2014 2015 2016E2017E2018E2019E
Figure 21 : Zero Coupon Inflation Swaps REVENUE GROWTH

for Eurozone Bonds
We make the assumption that during the next five year growth will remain impressive but
decline over time. This is supported by the fact that Orpea is expected to deliver a growth
2,5%
of 18,5% for 2016, thus beating guidance, and growth should remain strong during the
2,0%
coming years because of the strong pipeline which secures organic growth for the next
three or four years and by Orpeas know-how regarding acquisitions.
1,5% Growth will be primarily driven by acquisitions of new platforms in existing countries or in
new countries. We believe that Orpea is well-suited to continue the acquisitions of new
1,0% platforms while maintaining its operational efficiency because the company now has
established procedures facilitating integration and disposes of a strong knowledge of the
0,5%
different regulatory systems in Europe, moreover its reputation will help the group to gain
0,0% the authorities trust in new markets. With a European pipeline of 9041 beds including
2018 2028 2038 2048 2058 7437 beds under construction and 1604 under redevelopment Orpea will also be able to
deliver a strong organic growth for the coming years. The growth will also be supported by
the current inadequate supply of beds in nursing homes for the elderlies in several
Source : Bloomberg
European countries combined with the incapacities of public operator to deliver the
Figure 22 : Dividend Per Share required investments. In the mid-term and long-term the main driver will be population
ageing in Europe, according to Eurostat by 2050 the number of people aged over 80 will
2,00 double to 57m and the number of those aged over 90 will triple to 13m, the number of
1,75 people aged over 80 in the European Union is expected to grow at a CAGR of 2,37%
1,50 between 2015 and 2050.
1,25
TERMINAL GROWTH
1,00
To estimate the terminal growth rate that is used in our Discounted Cash Flow and
0,75 Dividend Discount Models we proceed by adding the expecting inflation rate in the
0,50 European Union to the CAGR of the number of people aged over 80 in the European
Union. According to Eurostat the number of people aged over 80 will grow at CAGR of
1,11% between 2030 and 2080. We used the Zero Coupon Inflation Swaps on bonds in
Eurozone as a proxy for the expected inflation rate (see Figure 21), it converges towards
Source : Company, Team Estimates 2% which is coherent with the E.C.B. Target Rate for Inflation. The terminal growth rate
used in our models is 3%.
Figure 23 : DDM Monte Carlo Simulation
DIVIDEND DISCOUNT MODEL
7% In 2008 Orpea began to distribute dividends, between 2011 and 2015 the compounded
annual growth rate of the dividend per share was 35,1%. In 2015 the dividend was 0,90
6%
per share increasing by 12,5% versus previous year, the payout ratio was 35,1% in 2015
5% and 31,7% on average in the last five years. In 2016 dividends are forecasted by analysts to
be 1,05 per share increasing by 16,5%. Given that Orpea recently began to distribute
4%
dividends and that earnings are expected to grow at a fast rate in the coming years we
3% view a Three-Stage Dividend Discount Model as an effective way to estimate the intrinsic
value of Orpea for a minority shareholder. We forecast EPS to grow at a compounded
2%
annual growth rate of 14,22% during the high-growth stage. In the stable phase dividend
1% payout ratio is calculated from forecasted fundamentals and expected growth rate of
0% dividends. During the transition period each variable evolve linearly towards their final
levels. Our base case scenario support our Buy recommendation with a price target of
60
63
67
71
75
79
83
87
91
94
98
102
106
110
114
118
122
125
129
133
89,32 per share, we also conducted a sensitivity analysis using Monte Carlo Simulation
which resulted in a median intrinsic value of 89,92 per share
Source : Team Estimates
RELATIVE VALUATION
Table 6 : DDM Statistics Throughout a Relative Valuation approach, we try to do a pricing of Orpea based on
fundamentals relative to peer group. Instead of simply applying median valuation
multiples to Orpea to deduce an intrinsic value we prefer using multifactorial models built
with multiple regressions to estimate predicated valuation multiples because we can
control for differences in fundamental factors. Our predicted EV/EBITDA is significant at
the 5% level and our predicted P/E is significant at the 1% level. We also use a PEG relative
valuation in order to take note of the different analysts consensus towards earning
growth rates. Our three relative valuations of Orpea suggest that the company is fairly
valued with an arithmetic mean of the intrinsic values equal to 77,48.
MONTE CARLO SIMULATION

We conducted Monte Carlo Simulations for our DCF and DDM models in order to
Source : Team Estimates introduce the effects of uncertainties in our valuation. Monte Carlo Analysis simulated the
impact of changes in key factors in our DCF model such as intensity of growth during the
Figure 24 : EV/EBITDA high-growth period, operating margin, economic moat and factors affecting cost of capital
such as target capital structure and credit spread. The analysis for our DCF simulated
25
15,000 outcomes displayed below, simulation resulted in a median price target equal to
202,5% 91,69 and 62,33% of the outcomes resulted in a buy recommendation.
152,0%
101,5%

51,0%
DCF Monte Carlo Simulation
00,5%
0,0%
2018 ORP -
2028 TEV/LTM EBITDA
2038 2048 2058
KORI - TEV/LTM EBITDA
RHC - TEV/LTM EBITDA
Peer Group Average EV/EBITDA
Source : Bloomberg
Table 7 : Risk Mitigation Investment Risks
CREDIT RISK
(C1) Increase in interest rates: With an adjusted Net Debt / EBITDA ratio of 5,8 Orpea is
heavily indebted but 80% of Orpeas debt is related to real-estate. Sudden increase in
interest rates wont have a significant impact towards Orpeas current financial situation
as three quarter of the debt is hedged at fixed rates, but it would limit Orpeas capacity to
fund upcoming acquisitions with debt thus slowing external growth.
MARKET RISK
(M1) Supplier Risk: Suppliers and subcontractors failures or interruption of services is a
significant risk as some services are essentials to maintain agreements in this heavily
regulated environment, Orpea will be constrained to buy from other suppliers with the
risk of buying at higher price or buying lower quality equipments.
OPERATIONAL RISK:
(O1) Mistreatment Risk: Mistreatment can be defined as an act of abuse or neglect that
could harms the elderlies and dependent people living in Orpeas facilities. Even with
qualified personal mistreatment remain one of the most important risk, elderlies and their
families family can feel mistreated for several reasons and engage legal procedures.
Mistreatment accusations could severely affect Orpeas reputation.
(O2) Acquisition Risk: With numerous acquisitions in recent years and several expected to
occur in the near future Orpea carry out an active development through acquisitions.
There is a risk that Orpea wont be able to successfully integrate acquisitions, resulting in
Figure 25 : Interest Rates Derivatives effective costs higher than expecting, negative impact towards margins and loss of
efficiency at the organization level.
1 450 2,0%
1,8% (O3) Pandemic and Climate Risk: Like his main competitor Korian in December 2016,
1 400
1,6% Orpea could be confronted with epidemic diseases, Orpea should also be ready to face
1 350 1,4% abnormal weather conditions to which aged people are very sensitive. Realization of these
1 300 1,2% risks would deeply impact Orpeas brand image.
1,0%
1 250 0,8%
1 200 0,6%
GOVERNMENTAL RISK
0,4% (G1) Public operators: While public operators had trouble meeting the capital
1 150 requirements and are expected to continue to do so because of strong budgetary
0,2%
1 100 0,0% constraints in Europe, a political shift inducing stronger implication of public authorities
2016 2017 2018 2019 2020 regarding care of the elderly could increase competition between private and public
operators.
Average Notional Amount (M)
(G2) Cut in social security: Due to budgetary constraints, several European countries could
Effective Rate cut part of the social security budget. This cut would imply that residents pay a bigger part
of the costs associated with long-term care. This situation could eventually lead to
Source : Company solvency issues with customers and push them to choose cheaper solution like those
proposed by non-profit or public operators.
(G3) Home-care development: In recent year governments across Europe made efforts to
promote home-care and the majority of aged people can stay at home with more or less
Figure 26 : Risk Matrix outside assistance depending the level of dependency. Residents and their families now
have the option to choose among several solutions thus increasing rivalry.
REGULATORY RISK:
(R1) Regulator requirements: Orpeas activity is highly supervised and the group chooses
to operate in country with complex regulatory framework and heavy regulation to take
advantage of the extremely high barrier to entry. In order to obtain and maintain their
licenses Orpea will be subject to several procedures and verification by regulatory
authorities. Failing to meet the requirements or having difficulties to obtain these licenses
could harm Orpeas activity and limit growth opportunities.

APPENDIX A: ADJUSTED HISTORICAL AND PROJECTED FINANCIAL STATEMENTS

( In Million) Historical Balance Sheet Projected Balance Sheet
Assets
Cash, Cash Equivalents & STI 309,5 362,3 468,4 621,9 518,9 631,4 645,4 655,3 659,6
Accounts & Notes Receiv 93,5 100,3 80,3 104,6 127,4 151,0 170,6 190,5 210,2
Inventories 4,2 5,0 5,7 6,6 8,1 9,6 10,8 12,1 13,3
Other ST Assets 317,8 258,8 393,9 424,0 547,5 648,8 733,2 818,7 903,3
Total Current Assets 725,0 726,4 948,2 1 157,1 1 202,0 1 440,8 1 560,0 1 676,6 1 786,4
Property, Plant & Equip, Net 3 101,3 3 517,2 3 845,6 4 862,5 6 541,5 7 178,2 7 706,8 8 234,9 8 748,6
Property, Plant & Equip 3 473,9 3 963,8 4 367,6 5 458,9 7 275,5 7 983,6 8 571,5 9 158,8 9 730,3
Accumulated Depreciation 372,7 446,6 522,1 596,4 734,0 805,4 864,7 924,0 981,6
LT Investments & Receivables 10,0 10,5 12,7 15,3 16,2 17,0 17,6 18,2 18,9
Other LT Assets 1 529,7 1 766,2 1 928,9 2 331,2 2 708,1 2 628,2 2 572,2 2 498,0 2 398,3
Total Noncurrent Assets 4 640,9 5 293,9 5 787,1 7 209,0 9 265,8 9 823,4 10 296,6 10 751,1 11 165,8
Total Assets 5 365,9 6 020,3 6 735,3 8 366,2 10 467,7 11 264,2 11 856,6 12 427,6 12 952,2
capital
Liabilities & Shareholders' Equity
Payables & Accruals 350,7 360,3 398,8 483,6 470,4 549,8 621,2 693,7 765,4
ST Debt 555,2 611,8 415,7 527,7 579,5 631,4 645,4 655,3 659,6
ST Borrowings 276,9 403,3 133,0 186,3 195,4 212,2 216,8 220,2 221,6
ST Capital Leases 49,9 58,5 79,3 71,9 117,6 111,5 114,0 115,7 116,5
ST Operating Leases 89,7 108,1 130,3 206,1 265,3 257,3 262,9 267,0 268,7
Current Portion of LT Debt 138,7 41,8 73,2 63,6 1,2 50,5 51,6 52,4 52,8
Other ST Liabilities 368,4 456,3 604,1 586,7 495,8 587,6 663,9 741,4 818,0
Total Current Liabilities 1 274,3 1 428,4 1 418,6 1 598,0 1 545,7 1 768,8 1 930,6 2 090,4 2 243,0
LT Debt 2 256,3 2 626,7 3 078,4 4 352,9 6 050,1 6 314,5 6 453,8 6 552,6 6 595,6
LT Borrowings 991,3 1 167,3 1 380,9 1 965,6 2 547,4 2 778,4 2 839,7 2 883,1 2 902,1
LT Capital Leases 470,5 502,2 544,0 513,4 671,6 694,6 877,7 891,1 897,0
LT Operating Leases 794,5 957,2 1 153,5 1 873,9 2 831,1 2 841,5 2 736,4 2 778,3 2 796,6
Other LT Liabilities 680,8 749,4 825,0 916,9 1 062,2 1 258,7 1 422,3 1 588,2 1 752,3
Total Noncurrent Liabilities 2 937,1 3 376,1 3 903,4 5 269,8 7 112,3 7 573,1 7 876,1 8 140,8 8 348,0
Total Liabilities 4 211,4 4 804,5 5 321,9 6 867,8 8 658,0 9 341,9 9 806,7 10 231,2 10 591,0
Preferred Equity 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0
Retained Earnings 392,0 302,3 337,0 346,6 126,6 116,1 131,5 151,2 170,0
Other Equity 760,9 912,0 1 075,4 1 151,4 1 682,9 1 806,0 1 918,1 2 045,1 2 191,1
Equity Before Minority Interest 1 151,7 1 214,3 1 412,4 1 498,0 1 809,5 1 922,1 2 049,6 2 196,2 2 361,1
Minority/Non Controlling Interest 2,9 1,5 1,0 0,4 0,2 0,2 0,2 0,2 0,2
Total Equity 1 154,5 1 215,8 1 413,4 1 498,3 1 809,7 1 922,3 2 049,8 2 196,4 2 361,3
Total Liabilities & Equity 5 365,9 6 020,3 6 735,3 8 366,2 10 467,7 11 264,3 11 856,5 12 427,6 12 952,2

( In Million) Historical Balance Sheet Common Size Forecasted Balance Sheet Common Size
Assets
Cash, Cash Equivalents & STI 5,77% 6,02% 6,95% 7,43% 4,96% 5,61% 5,44% 5,27% 5,09%
Accounts & Notes Receiv 1,74% 1,67% 1,19% 1,25% 1,22% 1,34% 1,44% 1,53% 1,62%
Inventories 0,08% 0,08% 0,08% 0,08% 0,08% 0,08% 0,09% 0,10% 0,10%
Other ST Assets 5,92% 4,30% 5,85% 5,07% 5,23% 5,76% 6,18% 6,59% 6,97%
Total Current Assets 13,51% 12,07% 14,08% 13,83% 11,48% 12,79% 13,16% 13,49% 13,79%
Property, Plant & Equip, Net 57,80% 58,42% 57,10% 58,12% 62,49% 63,73% 65,00% 66,26% 67,55%
Property, Plant & Equip 64,74% 65,84% 64,85% 65,25% 69,50% 70,88% 72,29% 73,70% 75,12%
Accumulated Depreciation 6,95% 7,42% 7,75% 7,13% 7,01% 7,15% 7,29% 7,43% 7,58%
LT Investments & Receivables 0,19% 0,17% 0,19% 0,18% 0,15% 0,15% 0,15% 0,15% 0,15%
Other LT Assets 28,51% 29,34% 28,64% 27,86% 25,87% 23,33% 21,69% 20,10% 18,52%
Total Noncurrent Assets 86,49% 87,93% 85,92% 86,17% 88,52% 87,21% 86,84% 86,51% 86,21%
Total Assets 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00%
capital
Liabilities & Shareholders' Equity
Payables & Accruals 6,54% 5,99% 5,92% 5,78% 4,49% 4,88% 5,24% 5,58% 5,91%
ST Debt 10,35% 10,16% 6,17% 6,31% 5,54% 5,61% 5,44% 5,27% 5,09%
ST Borrowings 5,16% 6,70% 1,97% 2,23% 1,87% 1,88% 1,83% 1,77% 1,71%
ST Capital Leases 0,93% 0,97% 1,18% 0,86% 1,12% 0,99% 0,96% 0,93% 0,90%
ST Operating Leases 1,67% 1,80% 1,93% 2,46% 2,53% 2,28% 2,22% 2,15% 2,07%
Current Portion of LT Debt 2,58% 0,69% 1,09% 0,76% 0,01% 0,45% 0,44% 0,42% 0,41%
Other ST Liabilities 6,86% 7,58% 8,97% 7,01% 4,74% 5,22% 5,60% 5,97% 6,32%
Total Current Liabilities 23,75% 23,73% 21,06% 19,10% 14,77% 15,70% 16,28% 16,82% 17,32%
LT Debt 42,05% 43,63% 45,71% 52,03% 57,80% 56,06% 54,43% 52,73% 50,92%
LT Borrowings 18,47% 19,39% 20,50% 23,49% 24,34% 24,67% 23,95% 23,20% 22,41%
LT Capital Leases 8,77% 8,34% 8,08% 6,14% 6,42% 6,17% 7,40% 7,17% 6,93%
LT Operating Leases 14,81% 15,90% 17,13% 22,40% 27,05% 25,23% 23,08% 22,36% 21,59%
Other LT Liabilities 12,69% 12,45% 12,25% 10,96% 10,15% 11,17% 12,00% 12,78% 13,53%
Total Noncurrent Liabilities 54,74% 56,08% 57,95% 62,99% 67,94% 67,23% 66,43% 65,51% 64,45%
Total Liabilities 78,48% 79,81% 79,02% 82,09% 82,71% 82,93% 82,71% 82,33% 81,77%
Preferred Equity 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
Retained Earnings 7,30% 5,02% 5,00% 4,14% 1,21% 1,03% 1,11% 1,22% 1,31%
Other Equity 14,18% 15,15% 15,97% 13,76% 16,08% 16,03% 16,18% 16,46% 16,92%
Equity Before Minority Interest 21,46% 20,17% 20,97% 17,91% 17,29% 17,06% 17,29% 17,67% 18,23%
Minority/Non Controlling Interest 0,05% 0,02% 0,01% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
Total Equity 21,52% 20,19% 20,98% 17,91% 17,29% 17,07% 17,29% 17,67% 18,23%
Total Liabilities & Equity 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00%

( in Million) Historical Income Statement Projected Income Statement
Revenue 1 234,1 1 429,3 1 607,9 1 948,6 2 391,6 2 834,0 3 202,5 3 576,1 3 945,6
YoY Growth (%) 28,0% 15,8% 12,5% 21,2% 22,7% 18,5% 13,0% 11,7% 10,3%
Other Operating Income 5,0 4,4 2,5 7,4 22,8 12,8 14,4 16,1 17,8
Operating Expenses 1 029,8 1 189,0 1 313,8 1 619,3 2 060,6 2 407,5 2 714,1 3 023,6 3 329,3
Depreciation & Amortization 125,1 151,7 177,9 238,1 326,5 388,3 440,3 493,5 546,5
Other Operating Expense 904,7 1 037,3 1 135,9 1 381,2 1 734,1 2 019,3 2 273,8 2 530,1 2 782,8
Operating Income (Loss) 209,4 244,7 296,6 336,6 353,8 413,8 474,0 536,4 598,6
Non-Operating (Income) Loss 65,0 72,8 95,5 124,3 139,8 132,6 143,5 153,1 161,0
Interest Expense, Net 61,5 59,6 74,6 83,3 82,0 95,8 101,8 106,6 109,7
Interest Expense 62,0 60,4 75,1 83,7 82,6 96,4 102,5 107,3 110,5
Interest Income 0,6 0,8 0,5 0,4 0,6 0,6 0,6 0,7 0,8
Other Non-Op (Income) Loss 3,5 13,2 20,9 41,0 57,8 36,8 41,6 46,5 51,3
Pretax Income 125,0 148,5 172,9 212,4 214,0 244,3 288,9 336,9 386,3
Income Tax Expense (Benefit) 45,5 52,4 61,0 65,8 60,0 68,4 89,5 107,8 128,7
Current Income Tax 22,1 45,4 59,8 63,4 70,4 -- -- -- --
Deferred Income Tax 23,5 7,1 1,2 2,4 -10,4 -- -- -- --
(Income) Loss from Affiliates -0,8 -1,0 -1,9 -1,8 -3,4 -- -- -- --
Minority Interest 0,0 0,1 -0,1 -0,1 0,0 0,0 0,0 0,0 0,0
Net Abnormal Losses (Gains) -25,9 -17,2 -22,4 -23,4 -12,1 0,0 0,0 0,0 0,0
Net Extraordinary Losses (Gains) 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0
Net Income, Adjusted 54,4 79,8 91,5 97,4 145,4 175,9 199,3 229,1 257,5
( in Millions) Common Size Historical Income Statement Common SizeProjected Income Statement
Revenue 100,00% 100,00% 100,00% 100,00% 100,00% 100% 100% 100% 100%
Other Operating Income 0,41% 0,31% 0,16% 0,38% 0,95% 0,45% 0,45% 0,45% 0,45%
Operating Expenses 83,44% 83,19% 81,71% 83,10% 86,16% 84,95% 84,75% 84,55% 84,38%
Depreciation & Amortization 10,13% 10,61% 11,07% 12,22% 13,65% 13,70% 13,75% 13,80% 13,85%
Other Operating Expense 73,31% 72,57% 70,64% 70,88% 72,51% 71,25% 71,00% 70,75% 70,53%
Operating Income (Loss) 16,97% 17,12% 18,45% 17,28% 14,79% 14,60% 14,80% 15,00% 15,17%
Non-Operating (Income) Loss 5,27% 5,09% 5,94% 6,38% 5,85% 4,68% 4,48% 4,28% 4,08%
Interest Expense, Net 4,98% 4,17% 4,64% 4,28% 3,43% 3,38% 3,18% 2,98% 2,78%
Interest Expense 5,03% 4,23% 4,67% 4,30% 3,45% 3,40% 3,20% 3,00% 2,80%
Interest Income 0,05% 0,06% 0,03% 0,02% 0,02% 0,02% 0,02% 0,02% 0,02%
Other Non-Op (Income) Loss 0,29% 0,92% 1,30% 2,10% 2,42% 1,30% 1,30% 1,30% 1,30%
Pretax Income 10,13% 10,39% 10,75% 10,90% 8,95% 8,62% 9,02% 9,42% 9,79%
Income Tax Expense (Benefit) 3,69% 3,67% 3,80% 3,37% 2,51% 2,41% 2,80% 3,01% 3,26%
Current Income Tax 1,79% 3,17% 3,72% 3,25% 2,95% -- -- -- --
Deferred Income Tax 1,90% 0,50% 0,08% 0,12% -0,44% -- -- -- --
(Income) Loss from Affiliates -0,07% -0,07% -0,12% -0,09% -0,14% -- -- -- --
Minority Interest 0,00% 0,00% -0,01% 0,00% 0,00%
Net Abnormal Losses (Gains) -2,10% -1,20% -1,40% -1,20% -0,50% 0,00% 0,00% 0,00% 0,00%
Net Extraordinary Losses (Gains) 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
Net Income, Adjusted 4,41% 5,59% 5,69% 5,00% 6,08% 6,21% 6,22% 6,41% 6,53%

APPENDIX B: CORPORATE GOVERNANCE
In order to measure the quality of Orpeas corporate governance we will be using the methodology of the Institutional Shareholder
Services Inc. (ISS). This methodology consists in estimating governance quality by using four pillars: Board structure, Compensation,
Shareholder rights, Audit and Risk oversight. We analyze the potential negative impact each pillars could possibly have towards value
creation and shareholders rights.
BOARD STRUCTURE:
Board of directors is composed by 12 members. They have the diversity of expertises required to serves the companys current strategy.
With 2 new independent members in 2016, Brigitte Lantz and Laure Baume, independent directors now represent 66% of the board. The
board performance is assessed and results are reported. The board is both independent and experienced, overall the board structure isnt
threatening value creation and shareholders rights. In accordance with the AFEP MEDEF rule of separation of power, CEO and Chairman of
ORPEA are separated, Jean-Claude Marian is the chairman while Yves le Masne is the CEO., this choice limites the power of the CEO on the
board of directors.
COMPENSATION/REMUNERATION:
Management remuneration is aligned with the current company strategy. There is no sign of excessive incentives that will harm the long-
term company value but presence of quantitative indicators used in determining remuneration could lead to some short-termism behavior
that does not maximize value creation over the long run. A compensation committee exists in order to make proposal to the board
members. Threats towards value creation and shareholders rights are assessed as moderate.
SHAREHOLDERS RIGHTS:
Voting rights are time dependent, under the Florange Law, shares registered for more than two years are granted double voting rights,
long-term shareholders thus have more power than new comers and it may favors long-term policy but it may also lead to cosy insiders
relationships and weaker governance. There is no anti-takeover provision (poison-pill) and 5% of shareholders are required to call special
meeting thus strengthening minority shareholders rights. M.D. Jean-Claude Marian the chairman owns 7% of Orpeas capital, thus he has
strong incentives to act in favor of shareholders.
AUDIT AND RISK:

An audit committee set up by the board of directors met at least twice a year. This committee is responsible for of the financial reporting
function and implementation of accounting policies in order to prepare the Board of Directors decisions. The committee is composed by 4
members, 3 of them are independents. We judge the oversight of the audit and risk committee as strong and see no potential threats
towards value creation and shareholders rights.
Criteria Risk
Board Structure Moderate
Compensation Moderate
Shareholder Rights Low
Audit and Risk Low
Overall Low

AUDIT COMMITTEE
Members Title
Jean-Patrick FORTLACROIX Chairman
Thierry MABILLE de PONCHEVILLE Member
Alexandre MALBASA Member
Alain CARRIER Member
APPOINTMENTS AND REMUNERATION COMMITTEE
Members Title
Thierry MABILLE de PONCHEVILLE Chairman
Bernadette CHEVALLIER DANET Member
Alain CARRIER Member
Sophie MALARME LECLOUX Member

APPENDIX C: BOARD OF DIRECTORS
Board members Title Independent Qualification
Doctor Jean-Claude Chairman, Member of Group No - Co-founder of the ORPEA Group
MARIAN Executive Committee, Member - Medical doctor with a specialization in neuropsychiatry
of Works & Safety Committee - Many years of experience in designing and organizing
and Member of Business care facilities
Development Committee
Yves LE MASNE Chief Executive Officer and No - Former computer science engineer specializied in
Director management audit and finance
- He used to be Chief Operating Officer and Chief
Financial Officer of ORPEA
Alexandre MALBASA Director and Member of Audit No - Doctor in Law
Committee - Works for Orpea as a lawyer
Jean-Patrick FORTLACROIX Independent Director and Yes - Graduate with a masters degree in accounting and
Chairman of Audit Committee financial science and techniques.
- Chairman of SA ADD EQUATION
- Legal Manager of SARL CADECO
Thierry MABILLE de Independent Director, Chairman Yes - Graduate with a degree in Private International Law
PONCHEVILLE representing of Appointments & from University of Bordeaux
FPP Invest Remuneration Committee and - Chief Operating Officer of tablissements Peugeot
Member of Audit Committee Frres.
- Chief Operating Officer of the PSP SA Group.
- Director of Sicav MO Select.
- Deputy Legal Manager of the Socit Civile du Bannot
Sophie MALARME LECLOUX, Independent Director and Yes - Graduate with an MBA from Solvay Brussels School
appointed on proposal by Member of Appointments & - Worked in the Corporate Banking team of ING Brussels.
Sofina Remuneration Committee - Worked in the finance department and the investment
team of the SOFINA GROUP
- She created the FreeBe Sprl Company for
management consulting, entrepreneur support and
personal and organizational development.
Alain CARRIER, appointed Independent Director, Member Yes - Graduate with a masters degree in law from Columbia
on proposal by CPPIB of Audit Committee and University.
Member of Appointments & - Managing Director in the investment banking division of
Remuneration Committee Goldman Sachs & Co
- He worked for the law firm Sullivan & Cromwell
Bernadette CHEVALLIER Director and Member of Yes - She occupied several functions in finance, revenues and
DANET Appointments & Remuneration marketing for companies like Accor, Club Mditerane
Committee and in the independent lodging industry.
Sophie KALAIDJIAN Director representing the No - Graduate with a degree in law, she is currently a lawyer
employees - She is in charge with CLINEA legal department.
Christian HENSLEY, Independent Director Yes - Graduate from the University of Pennsylvania and has
appointed on proposal by an MBA from Harvard Business School.
CPPIB - He worked in the investment services division of
Salomon Brothers
- Member of the Board of Directors of 21st Century
Oncology
- Member of Board of Directors of five companies in the
business services, healthcare, communications and
education sectors.
Laure BAUME Director Yes - Graduate of HEC Paris business school
- She worked at Kraft Foods International where she
holds different position.
- Currently she is Deputy Chief Executive Officer and
Head of Customer division at Aroport de Paris.
Brigitte LANTZ Director Yes - Doctor specializing in nephrology
- She practices at Necker hospital and holds a DEA
postgraduate degree in endocrinology.
- Advisor of several health minister between 2002 and
2012.

APPENDIX D: HOLDINGS
Shareholding Structure
% of capital
15% CPPIB
7% Jean-Claude Marian
6% FPP Invest
5% Sofina
67%
Float
INSIDER HOLDINGS:
Holder Name Position % Out Latest Chg
MARIAN JEAN-CLAUDE 4 134 775,00 6,86 1666
LE MASNE YVES 10 779,00 0,02 0
FORTLACROIX JEAN-PATRICK 153,00 0 0
LECLOUX SOPHIE MALARME 50,00 0 0
MALBASA ALEXANDRE 42,00 0 0
DANET BERNADETTE 42,00 0 0
CARRIER ALAIN 1,00 0 0
APPENDIX E: DEBT STRUCTURE AND SCHEDULE

Debt by type and eligibility:
Value (M) Under One Year One to Five years Over five years
Bonds 704,09 - 1,24 548,73 156,60
Long-term Bank Borrowings 234,91 37,92 172,38 24,62
Finance Lease Obligations 789,16 117,59 338,08 333,49
Operating Lease Obligations 3 096,38 274,30 1 371,50 2 581,00
Bridging Loans 557,98 179,31 376,74 1,93
Misc. 1 447,06 180,64 861,26 405,17
Total : 6 829,59 788,52 3 668,68 3 502,81
Bonds breakdown:
Maturity Cpn Amt Out () Maturity Type Principal Due () Interest Due () Rank
01/10/2018
4,10 65 000,00 AT MATURITY 65 000,00 2 665,00 Senior Unsecured Bonds
11/30/2018
4,20 20 000,00 AT MATURITY 20 000,00 840,00 Senior Unsecured Bonds
12/31/2018
05/30/2019
4,60
161 000,00 AT MATURITY 161 000,00 7 406,00 Senior Unsecured Bonds
11/30/2019
01/01/2020
1,75
198 374,98 CONVERTIBLE 198 374,98 1 735,78 Senior Unsecured Bonds
12/31/2020
07/31/2021
12/22/2022
12/22/2022
12/22/2025
12/04/2026
Loans breakdown: These loans were issued by Union Sanyres before being consolidated by Orpea:
Issuer Rank Tranche Maturity Principal Due()

Union Sanyres SL Senior Unsecured Loans A 10/30/2024 110 344,52
Union Sanyres SL Senior Unsecured Loans B 10/30/2024 40 347,53
In the first table we observe that operating leases commitments -an off-balance sheet item- amount for nearly 3 billion , we computed
that in the last 3 years operating leases commitments amounted for 42% of long-term debt on average, given this significant weight in the
capital structure, balance sheet adjustment concerning operating leases adjustment are crucial in order to find the right discount rate and
opportunity cost.
Orpeas financial debt mainly comprises domestic debt at floating rates and is therefore exposed to the risk of an increase in short-term
rates, to mitigate this risk the group hedges three quarter of its debt against changes in interest rates using swaps. At the end of 2015, the
maturity of the interest rates derivatives was the following:
2016 2017 2018 2019 2020

Average Notional Amount (M) 1 403,00 1 396,00 1 348,00 1 285,00 1 211,00
Effective Rate 1,80% 1,70% 1,60% 1,10% 1,00%
OPERATING LEASES COMMITMENTS:

FY 2015 FY 2014 FY 2013
Year Commitment Present Value Year Commitment Present Value Year Commitment Present Value
1 274,30 265,28 1 213,90 206,07 1 135,20 130,25
2 274,30 256,56 2 211,83 196,60 2 135,20 125,48
3 274,30 248,12 3 211,83 189,40 3 135,20 120,89
4 274,30 239,96 4 211,83 182,47 4 135,20 116,46
5 274,30 232,07 5 211,83 175,79 5 135,20 112,20
6 and beyond 2 581,00 1 854,38 6 and beyond 1 604,10 1 129,64 6 and beyond 135,20 678,43
Debt Value of leases : 3 096,38 Debt Value of leases : 2 079,97 Debt Value of leases : 1 283,71
APPENDIX F: RETURN ON EQUITY ANALYSIS

R.O.E Decomposition - LTM Basis

Ticker Tax Burden Interest Burden Operating Margin Asset Turnover Financial Leverage R.O.E
ORP FP 68,61% 70,13% 12,18% 0,36 4,20 7,88%
KORI FP 43,43% 57,14% 7,79% 0,48 3,15 3,82%
SPI LN 80,92% 86,14% 12,12% 0,54 1,66 7,42%
CAPIO SS 80,66% 83,15% 2,27% 1,14 2,31 7,60%
ATT SS 80,96% 77,90% 8,60% 0,98 2,10 13,10%
MDC LN 77,27% 77,68% 14,50% 0,33 1,81 6,20%
RHC AU 61,69% 83,66% 9,45% 1,09 4,70 26,79%
Median 77,27% 77,90% 9,45% 0,54 2,31 7,60%

The analysis suggests that Orpeas return on equity is slightly above the median despite strong operating margin and heavy financial
leverage compared to peers, this is mainly explains by the low asset turnover and the financial structure that generates high interest
expenses. The impact of taxes towards return on equity is also superior to the median level in our peer group due to the French marginal
tax rates. Korians return on equity is the lowest in our peer group, this is explain by low operating margins, important interest burden and
high effective tax rates.

APPENDIX G: PORTER ANALYSIS
THREAT ON PROFITABILITY
BUYER POWER:
Customers are small and heavily dependent (they are 88 years old on average) and stay between 18 to 20 months in nursing homes. There
isnt a lot of room for product differentiation, the differentiation depends on the quality of the services provided and the level of care.
Buyers quality of life may be heavily impacted if they cannot afford dependency care, in many case it isnt dispensable. According to DRESS
(Official Government Office) price is one of the less important criteria selected by resident and family when choosing a nursing home with
the first one being the location. Switching costs arent extremely high but dependent people may not want to change their ways and adapt
to a new staff. Overall buyers power is assessed as weak.
SUPPLIER POWER:
Supplier to healthcare facilities provides pharmaceutical supply, medical equipment, lands and building. Suppliers benefit from the buyers
need to have top quality products, meaning that they are able to raise prices. Research is important for pharmaceutical suppliers as buyers
are cost aware, they have to propose real improvements over previous model for buyers to invest. They should also adapt to the latest
scientific and technological advancements which induce strong investment and favors large suppliers. Orpea is also heavily dependent to
supplier for renting properties despite an ownership rate of 37% which will increase. Suppliers power is assessed as strong.
THREAT OF NEW ENTRANTS

Entry to this market on large scale requires significant capital, the scale of operations is important as the fixed costs are high. The market is
already highly fragmented with a few big operators such as Orpea and Korian and a lot of small independents. New entrants must also face
the stringent regulatory requirements which are different in every country, a fine understanding of the complex regulatory environment is
required to operate successfully. The low differentiation of products makes it hard for new entrants to compete with big players as they
arent able to profit from economies of scale. The threat of new entrants is assessed as weak.
THREAT OF SUBSTITUTES
There arent alternatives to long-term care facilities for customers that are heavily dependent, however depending of the level of
dependency home care services may be an alternative but Orpea also offers home care services. In several European countries
governments promoted home-care services in recent years. The post-acute and rehabilitation care activities arent threatened by
substitutes. A substitute to the psychiatric clinics would be the prescription of drugs but there is already an overprescribing of drugs
phenomenon. Overall the threat of substitutes is assessed as medium.
RIVALRY AMONG COMPETITORS

Depending on the country private sectors market share are comprised between 5% and 40% in Europe, private operators have to deal with
the presence of public operators and non-profit organization. The only operators operating with a large scale are Orpea and Korian, there is
also a lots of small independents operators. Small and public operators will have trouble meeting the capital requirements needed to build
new beds and catch the growth of the market, however high fixed costs and lack of differentiation boost rivalry. Overall the rivalry among
competitors is assessed as moderate.
Bargaining power of
buyers
5
2 Bargaining power of
Industry rivalry
suppliers
1
Threat of substitutes Threat of new entrants

APPENDIX H: SWOT ANALYSIS
In order to explain Orpeas market position within the European Healthcare Facilities sector we built a S.W.O.T analysis to identify the key
internal and external factors driving the company activity. It is structured as a series of categories within each sectionand are ranked
according to their level of impact on Orpeas position. The SWOT analysis is summarized in the graph below.
Strengths: Weakness:
Well-known brand Heavy capital requirements
Wide network Financial leverage
Competencies Regulated pricing
Know how to made successful

acquisitions Strengths
50
High-quality real-estate
portfolio 40

Geographic diversification
30
Diversified Offer
20
Recognized quality of services
Effective hedging of debt 10

Opportunities: Threats: Threats 0 Weakness
Favorable demographic in Regulatory overhead
both developed and emerging Difficulty to gain authorities
markets trust in new markets
Small players weakness will Home care services
offer room for acquisitions Intense competition with
Insufficient care in Europe and main competitor Korian
emerging markets
Heavy dependency is Opportunities
increasing
For-profit sectors market
shares are limited
Orpeas market shares are
inferior to 5% in each country
leaving room for growth.

APPENDIX I: BOTTOM-UP BETA AND W.A.C.C:
To compute the cost of equity we use a bottom-up beta approach, first we estimate the regression beta against local index of Spire
Healthcare, Korian, Capio, Attendo, Mediclnic, Ramsay Health Care Limited and Orpea on a 2 year period with a weekly periodicity, then we
calculate the average regression beta for our peer sample. To estimate the unlevered beta, we adjust the average beta for the effect of
financial leverage and tax rates. Finally, to obtain Orpeas levered beta we adjust the unlevered beta for Orpeas current financial leverage.
To set-up the bottom-up beta we have adjusted balance sheet to take account of operating lease commitments for each company, this is
especially important for our comparable group as operating lease commitment impact on market debt / equity ratios are relatively high. As
an example recognition of operating lease commitments as a balance-sheet item by Orpea would increase EBIT by 30,97 million and the
total debt outstanding by 3095,02 million.
We choose to use a bottom-up beta approach because the standard error will be lower than with a single regression beta and a bottom-up
beta will be adjusted to reflect changes in the firms financial leverage.
Regression Beta 2Y Weekly R-squared Market Debt / Equity Marginal Tax Rates
SPI 0,67 0,174 112% 20,00%
KORI 0,72 0,214 200% 33,33%
CAPIO 0,85 0,191 115% 22,00%
ORP 0,41 0,174 155% 33,33%
ATT N.S 0,001 -- --
MDC 0,84 0,113 42% 20,00%
RHC 0,74 0,229 41% 25,00%
Average 0,72 110% 25,61%
Unlevered Beta : 0,41

Std Error of Bottom-Up Beta 0,073
We obtain an Unlevered Beta equal to 0,41 and a standard error of Beta equal to 0,074 which is way better than the standard error of a
single regression Beta. Levered beta adjusted for Orpeas financial leverage is equal to 0,86.
To estimate the equity risk premium, we compute the arithmetic mean of the different equity risk premiums by country weighted by
revenue, we obtain an equity risk premium equal to 6,32%. We use data found on Damodarans website to obtain the implied equity risk
premium and the different country risk premium. The proxy for the risk-free rate is the Ger10y bond, currently yielding 0,48%. Currently
the pre-tax cost of debt is 3,4%.
Country ERP Weight Weighted ERP
France 6,40% 60,56% 3,87%
Belgium 6,55% 5,73% 0,38%
Spain 8,40% 2,50% 0,21%
Italy 8,40% 1,73% 0,14%
Switzerland 5,69% 5,12% 0,29%
Germany 5,69% 17,88% 1,02%
Austria 6,25% 6,10% 0,38%
Poland 6,90% 0,38% 0,03%
Total 6,32%
Equity Debt Capital

Market Value 4 575,20 6 852,21 11 427,41
Weight in Cost of Capital 40,04% 59,96% 100,00%
Cost of Component 5,92% 2,28% 3,74%
We obtain a current cost of capital equal to 3,74%. To estimate the cost of capital in the stable phase we normalize the risk-free rate and
make the assumption it moves upward towards 2,5% because it is unlikely that the E.C.B. refinancing rate will stay close to 0% and non-
conventional monetary policies such as quantitative easing are not meant to be employed in the long-run. We also make the assumption
that the credit spread will diminish to 0,7% which is the spread of a AA bond as the company become mature and less risky.
The beta used to compute the cost of equity during the stable growth period is different, we make the assumption that in the stable phase
the capital structure will be the target capital structure as the market debt / equity ratio converges towards the industry average.
According to data found on Damodarans website the average market debt to equity (adjusted for operating leases) for the healthcare
facility industry is 102,51%, as a result the levered beta will be 0,73 in the stable growth period, cost of capital will then be 4,58% in the
stable growth phase.
Equity Debt Capital

Weight in Cost of Capital 49,38% 50,62% 100,00%
Cost of Component 7,11% 2,10% 4,58%
APPENDIX J: PRESENT VALUE OF GROWTH OPPORTUNITIES
ORP KORI SPI CAPIO ATT MDC RHC
Current price (01/27/2016) 77,07 27,06 GBP 3,16 SEK 48,00 SEK 80,55 GBP 8,11 AUD 68,33
Forward EPS 2,93 1,14 0,18 3,01 4,25 0,37 2,60
Cost of Equity 6,42% 7,69% 6,51% 6,12% 4,78% 5,53% 6,52%
Risk-free rate* 0,48% 0,48% 1,01% 0,75% 0,75% 1,01% 2,78%
Levered Beta 0,94 1,10 0,88 0,90 0,71 0,63 0,62
Equity Risk Premium 6,32% 6,55% 6,25% 5,96% 5,67% 7,18% 6,03%
PVGO 31,44 12,23 GBP 0,40 -SEK 1,22 -SEK 8,40 GBP 1,42 AUD 28,44
PVGO as a % of current price 40,79% 45,18% 12,51% -2,53% -10,43% 17,57% 41,62%
*For each currency, risk-free rates are computed by adding the country default spread to the 10-year government bonds yield.
Currency Gov. 10yr bonds rate Country Default Spread Risk-free Rate
SEK 0,75% 0,00% 0,75%
AUD 2,78% 0,00% 2,78%
GBP 1,47% 0,46% 1,01%
EUR 0,48% 0,00% 0,48%
Our objective is to estimate the present value of growth opportunities for Orpea and companies within our peer sample thus estimating
how much investors pay for growth opportunities as a percentage of the current trading price. To compute the present value of growth
opportunities we divided the forward earnings per share of each company by their respective cost of equity to estimate the present value
of a perpetual income equal to the forward earnings per share, then we subtract it to the current trading price to estimate the present
value of growth opportunities that are priced by the market.
We note that the present value of growth opportunities for Orpea is less than for its main competitor Korian despite better operational
efficiency, stronger growth in 2017 and a better geographical diversification that gives an edge to Orpea in terms of acquisition, moreover
analysts growth expectation found on Bloomberg and Capital IQ are higher for Orpea than for Korian.
Excluding the Swedish companies for which the present values of growth opportunities are negative the median of the PVGO as a
percentage of the trading price for our sample is 41,03%, this suggests that the expectation towards Orpeas growth are in line with our
peer group.
APPENDIX K: ECONOMIC VALUE ADDED

( in Millions) Economic Value Added Analysis
NOPAT 133,1 158,3 191,9 232,4 254,6 275,33 312,46 350,41 388,27
WACC 3,74% 3,74% 3,74% 3,74% 3,74% 3,74% 3,74% 3,74% 3,74%
Capital 3 656,6 4 091,9 4 439,1 5 757,1 7 920,4 8 616,2 8 824,0 9 015,9 9174,38
Opportunity Cost 136,8 153,0 166,0 215,3 296,2 322,2 330,0 337,2 343,12
Economic Value Added -3,7 5,3 25,9 17,1 -41,6 -46,9 -17,6 13,2 45,15
Return On Invested Capital 3,64% 3,87% 4,32% 4,04% 3,21% 3,20% 3,54% 3,89% 4,23%
The analysis reveals that once EBIT and Capital are adjusted for operating leases Orpea has had trouble to create economic value in recent
years. Our team is confident that Orpea will be able to create economic value in the near future as the proportion of the mature network
increase and the group reaches critical size (3,000 beds) in countries where Orpeas presence is recent.

APPENDIX L: PEER GROUP COMPARISON
To elaborate our peer group we identified several companies within the healthcare facilities industry and classified them with different
criteria in order to keep those who are most similar to Orpea. We constructed an index of similitudes on a rating scale of 1 to 5 described in
the following table and kept the following companies:
Korian (KORI FP)

Spire Healthcare Group (SPI LN)
Ramsay Healthcare Limited (RHC AU)
Attendo (ATT SS)
Capio (Capio SS)
Mediclinic International PLC (MDC LN)
Company KORI SPI RHC ATT CAPIO MDC

Market Capitalization : 3 2 2 2 1 4
Revenue 5 Year Geometric : 5 2 5 3 3 4
Geographic Position/Diversification : 4 1 3 2 3 2
Growth Consensus : 4 3 5 5 5 5
Operating Margin : 3 5 4 3 2 5
Dividend Policy : 3 3 4 2 2 2
Financial Leverage : 4 4 2 2 4 2
Overall : 4/5 3/5 4/5 2,5/5 3/5 4/5
APPENDIX M: MULTIPLE ANALYSIS

Tkr & Exch Mkt. Cap. (B) Ent.Val. (B) P/B P/E Forward P/E ROE EBIT Margin Net Debt / EBITDA Net Debt / Com. Eq. (%) Div. Yield (%)
ORP FP 4,60 7,82 2,55 30,27 22,56 8,29 12,18 7,03 179,04 1,22
KORI FP 2,15 4,50 1,13 50,55 20,68 2,21 7,79 6,60 122,02 1,78
MDC LN 6,94 8,96 1,69 27,15 18,54 6,50 13,67 4,03 43,03 0,58
RHC AU 9,64 11,92 7,70 31,21 24,33 25,85 9,45 2,57 152,28 1,66
ATT SS 1,34 1,65 2,69 26,05 16,97 13,06 12,07 2,89 63,50 0,67
CAPIO SS 0,71 1,04 1,25 17,09 14,55 7,62 2,27 3,02 59,56 0,87
SPI LN 1,48 1,98 1,22 19,34 17,74 6,50 12,12 2,80 41,28 0,77
3rd Quartile 2,62 30,74 21,62 10,68 12,15 5,32 137,15 1,44
Median : 1,69 27,15 18,54 7,62 12,07 3,02 63,50 0,87
1st Quartile: 1,24 22,70 17,36 6,50 8,62 2,85 51,30 0,72
To estimate the intrinsic value per share we have used three valuation multiples:
A predicted trailing EV/EBITDA using a multifactor model constructed with a multiple regression on our peer group including
Orpea.
A predicted trailing P/E using a multifactor model constructed with a multiple regression on our peer group including Orpea.
A Price Earning to Growth using classic method.
PREDICTED TRAILING EV/EBITDA
Historical Enterprise Value / LTM EBITDA

25
20
15
10
ORP - TEV/LTM EBITDA KORI - TEV/LTM EBITDA
RHC - TEV/LTM EBITDA Peer Group Average EV/EBITDA

After testing different multiple regression models including various independent variables (effective tax rates, investments relative to
EBITDA, long-term growth consensus extracted from Capital IQ and Bloomberg, levered beta, operating margin and profit margin) we
selected the multiple regression model with a 5% statistical significance and the best adjusted coefficient of determination.
2
The multiple regression equation with an adjusted R equal to 0,833 and which is statistically significant at the 5% level is:
&'
. = 6,224 + 0,181 10,097 + 0,715
&()*+,

Then the predicted trailing EV/EBITDA is equal to 16,68.
Justified EV : 7 463 570 086,71

- Debt 4 002 700 000,00
- Minority Interest 200 000,00
+ Cash and equivalents 658 000 000,00
Equity value 4 118 670 086,71
Shares outstanding 60 200 000
Value per share 68,42
Following our predicted trailing EV/EBITDA model, the intrinsic value for Orpea is 68,41 per share.
ANALYSIS OF VARIANCE:
ANOVA df SS MS F Significance F
Regression 3 75,573 25,191 11,242 0,0386
Residual 3 6,721 2,240
Total 6 82,295

PREDICTED TRAILING P/E

Historical Trailing P/E
60
50
40
30
20
10
ORP - P/E KORI - P/E RHC - P/E Average PE

After testing different multiple regressions models including using various independent variables (Return On Equity, Dividend Payout, long-
term growth consensus extracted from Capital IQ and Bloomberg, levered beta and profit margin) we selected the multiple regression
model with a statistical significance less than 1% and with the best adjusted coefficient of determination.

2
The multiple regression equation with an adjusted R equal to 0,796 and which is statistically significant at the 1% level is:

= 2,067 + 0,488 + 1,415

Then predicted trailing P/E is equal to: 30,46 indicating an intrinsic value of 73,71 per share.
ANALYSIS OF VARIANCE:
Anova df SS MS F Significance F
Regression 2 579,252 289,626 15,915 0,012
Residual 4 72,792 18,198
Total 6 652,044
P.E.G. VALUATION
We calculated an intrinsic value per share through the Price/Earnings to Growth ratio using analysts consensus extracted from Bloomberg
as a proxy for the earnings growth rate. We observe that analysts expectation regarding earnings growth rate are higher for Orpea than
for peers.
Name P/E Earnings Growth Rate PEG

Median 26,44 16,89 1,72
ORPEA 29,56 21,70 1,36
CAPIO AB 17,37 13,00 1,34
KORIAN 49,65 20,70 2,40
RAMSAY HEALTH CARE LTD 32,78 16,44 1,99
SPIRE HEALTHCARE GROUP PLC 21,28 12,35 1,72
MEDICLINIC INTERNATIONAL PLC 26,54 17,34 1,53
ATTENDO AB 25,82 13,78 1,87

With diluted EPS of 2,42 the median PEG multiple suggest an intrinsic value of 90,32 per share.
Our three relative valuations of Orpea suggest that the company is fairly valued with an arithmetic mean of the intrinsic values equal to
77,48.

APPENDIX N: DISCOUNTED CASH FLOW ANALYSIS
In recent years Orpea has known a spectacular growth of its revenue and network, we believe that Orpeas double-digit growth will
continue for a few years before converging towards a stable growth rate. Due to Orpeas position in the corporate life-cycle it is
appropriate to estimate Orpeas intrinsic value through a three stage discounted cash flow model using Free Cash Flow to the Firm.
REVENUE:
We make the assumption that during the next five year growth will remain impressive but declines over time. This is supported by the fact
that Orpea is expected to deliver a growth of 18,5% for 2016, thus beating guidance and during the coming years growth will be supported
by the pipeline which secures organic growth for the next three or four years and by Orpeas know-how regarding acquisitions.
Growth will be primarily driven by acquisitions of new platform in existing countries or in new countries. We believe that Orpea is well-
suited to continue the acquisitions of new platforms while maintaining its operational efficiency because the company now has established
procedures facilitating integration and disposes of a strong knowledge of the different regulatory systems in Europe, moreover its
reputation will help the group to gain the authorities trusts in new markets. With an European pipeline of 9041 beds including 7437 beds
under construction and 1604 under redevelopment Orpea will also be able to deliver a strong organic growth for the coming years. The
growth will also be supported by the current inadequate supply of beds in nursing homes for the elderlies in several European countries
combined with the incapacities of public operator to deliver the required investments.
Then Orpea will know a transition phase where the growth rate converges toward the long-term rate and the reinvestment rate stabilize.
OPERATING MARGIN:
We make the assumption that Orpeas operating margin (adjusted for operating lease) will increase by approximately 100bp reaching 16%
by the time the company reach the stable growth phase. This assumption is supported by:
The fact that Orpea recently redefined the practice and methods that are applied by the different Business Units, thus improving
services quality, risk management and the reporting requirement of the Business Units strategy. The negative impact of
acquisitions towards operating margin will also be lower as integration gets easier thanks to standardized procedures.
Orpeas strategy to increase the ownership ratio of its facilities by 14% will improve operational and financial flexibility.
The proportion of the network which is mature has strongly increased in last five years to reach 88% and is expected to remain
stable, mature network allows margins to remain strong.
Orpeas wide economic moat allows strong performances to be sustainable.
CAPITAL EXPENDITURES AND WORKING-CAPITAL INVESTMENTS:

We made the assumption that non-cash working capital as a percentage of sales will remain stable over the period, this assumption is
supported by the fact that working capital as a percentage of sales has been relatively stable over time and is currently close to the
historical average.
Non-Cash Working Capital / Sales
To estimate capital expenditures during the high-growth period we have
normalized capital expenditures, during the last four years expenses related 0,00%
to acquisition, real-estate investments and other capital expenditures were 2006 2008 2010 2012 2014
176,03% of the sales increase YoY, we also adjust capital expenditures to
reflect the increase in capital productivity as measured by the return on -5,00%
capital. We chose to include acquisition expenses in capital expenditures as
we took account of the growth opportunities that acquisitions will generate.
-10,00%

300,00%
Capital expenditures during the second and third stage of our model will be
200,00% calculated using fundamentals, the reinvestment rate is calculated as the
growth in Net Operating Profit After Taxes divided by the Return On
100,00%
Capital, by doing so we are able to reflect the impact of the return on
0,00% capital which is function of Orpeas competitive edge and economic moat
2012 2013 2014 2015 towards free cash flow.
Acquisitions of Operating Assets / Sales Increase (%)
Other Capital Expenditures / Sales Increase (%)
Net Real Estate / sales increase (%)
Total (%)
HYPOTHESIS REGARDING THE END GROWTH-RATE AND RETURN ON CAPITAL
With our Porters 5 forces and S.W.O.T analysis we concluded that Orpea has a large and sustainable economic moat. The economic moat
results mainly from the fact that entry barriers are high given the the heavy capital expenditures required and the fact that the sector is
highly regulated in countries where Orpea operates, moreover new comers wont have incentives to join the market if the great majority of
the elderly already are in nursing homes.
In recent years Orpea has had a competitive edge over Korian its main competitor due to better operational efficiency and better
geographic diversification. Orpeas operational efficiency is expected to increase due to the companys real estate strategy which aims to
increase the ownership ratio of its facilities to 50% in the medium-term, the real-estate strategy will have a positive impact towards
operating margin and return on capital. In our DCF model financial statements are adjusted and operating leases commitments are
included in capital, as a result the increase in the ownership ratio wont increase capital employed while increasing operating margin then
giving a fair representation of the real estate strategys benefits.
For these reasons we expect that in the stable phase Orpea will be able to deliver a return on capital superior to its cost of capital. In our
main scenario we estimate the amount by which return on capital exceed the cost of capital to be around 1,5%, we conduct sensitivity
analysis of the variable with a Monte Carlo Simulation.
To estimate the terminal growth rate that is used in our Discounted Cash Flow and Dividend Discount Models we proceed by adding the
expecting inflation rate in the European Union to the CAGR of the number of people aged over 80 in the European Union. According to
Eurostat the number of people aged over 80 will grow at CAGR of 1,11% between 2030 and 2080. We used the Zero Coupon Inflation
Swaps on bonds in Eurozone as a proxy for the expected inflation rate, it converges towards 2% which is coherent with the E.C.B. Target
Rate for Inflation. The terminal growth rate used in our models is 3%.
Zero Coupon Inflation Swaps for Eurozone Bonds

2,50%
2,00%
Expected Inflation
1,50%
1,00%
0,50%
0,00%
2018 2023 2028 2033 2038 2043 2048 2053 2058

CALCULATION OF INTRINSIC VALUE:

DCF Base Case 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Expected Growth Rate: 18,50% 13,00% 11,67% 10,33% 9,00% 7,80% 6,60% 5,40% 4,20% 3,00%
Revenue: 2 834,05 3 202,47 3 576,09 3 945,62 4 300,73 4 636,19 4 942,17 5 209,05 5 427,83 5 590,67
Operating Margin: 14,60% 14,80% 15,00% 15,17% 15,33% 15,50% 15,67% 15,83% 16,00% 16,00%
Reinvestment Rate: 252,30% 221,03% 190,87% 163,25% 160,41% 157,58% 154,75% 121,56% 92,54% 49,31%
EBIT: 413,77 473,97 536,41 598,42 659,45 718,61 774,27 824,77 868,45 894,51
Tax Rates: 33,00% 33,00% 33,00% 33,00% 33,00% 33,00% 33,00% 33,00% 33,00% 33,00%
EBIT(1-t): 277,23 317,56 359,40 400,94 441,83 481,47 518,76 552,59 581,86 599,32
-Change in Working Capital: - 22,02 - 18,33 - 18,59 - 18,39 - 17,67 - 16,69 - 15,23 - 13,28 - 10,89 - 8,10
-Net Capex: 721,46 720,24 704,58 672,91 726,43 775,41 818,02 684,99 549,32 303,65
F.C.F.F. : - 422,22 - 384,35 - 326,59 - 253,58 - 266,93 - 277,25 - 284,03 - 119,12 43,43 303,77
ROC: 3,21% 3,57% 3,93% 4,29% 4,65% 5,01% 5,36% 5,72% 6,08% 6,08%
Cost of Capital: 3,72% 3,72% 3,72% 3,72% 3,72% 3,89% 4,06% 4,23% 4,40% 4,57%
P.V. of F.C.F.F. - 407,07 - 357,26 - 292,68 - 219,10 - 222,36 - 222,30 - 218,86 - 88,06 30,76 205,71
Stable Phase
Growth Rate: 3,00%
Reinvestment rate: 49,31%
N.O.P.A.T. : 617,30
Net Capex: 318,86
Working Capital Investments: - 14,44
F.C.F.F. : 312,88
Cost of Capital in Stable Phase: 4,57%
Future Value of terminal F.C.F.F. 19 968,81
Present Value of terminal F.C.F.F. 13 522,84

Present Value of F.C.F.F. during first two stages : - 1 791,22
Estimated Enterprise Value : 11 731,62
+Cash and equivalents: 658,00
-Market Value of Debt (adjusted): 6 979,62
-Minority Interests: 2,90
Estimated Equity Value: 5 407,10
Intrinsic Value Per Share: 89,82
Our D.C.F. suggests an intrinsic value of 89,82 per share for our base case scenario implying a 16,5% upside thus outperforming the
market.
APPENDIX O: MONTE CARLO SIMULATION (DCF)

To deal with the uncertainties regarding key inputs in our DCF model we did a Monte Carlo Simulation accounting for 5 variables. Our
Monte Carlo analysis simulated 15,000 outcomes which were equally weighted. Our assumptions are described below:
Factor Variable Distribution Parameters

Growth Opportunities CAGR of revenue during high-growth phrase Normal x : 12% s : 1,5%
Operationnal Effciency Target EBIT Margin Normal x : 16% s : 1%
Economic Moat R.O.C in excess of W.A.C.C Uniform 1% : 2%
Firm's Financial Stability Credit Spread Uniform 0,4% : 1%
Capital Structure Market Debt to Equity Ratio Normal x : 100% s : 15%
The DCF model produced a median intrinsic value of 91,69 per share and 56,48% of the outcomes resulted in a buy recommendation with
a price target of at least 84,87 thus outperforming the market, we observe that the distribution is positively skewed with observations
concentrated within the right tail of the distribution.
Statistics
1st Quartile 75,62
Mean 93,14
Median 91,69
3rd Quartile 106,92
Standard Deviation 21,94
Skewness 0,39
Kurtosis 3,04

APPENDIX P: DIVIDEND DISCOUNT MODEL

In 2008 Orpea began to distribute dividends, between 2011 and 2015 the compounded annual growth rate of the dividend per share was
35,1%. In 2015 the dividend was 0,90 per share increasing by 12,5% versus previous year, the payout ratio was 35,1% in 2015 and 31,7%
on average in the last three years. In 2016 dividends are forecasted by analysts to be 1,05 per share increasing by 16,5%.
Given Orpeas position in the life cycle it seems appropriate to do a valuation using a three stage dividend discount model.
HIGH-GROWTH PHASE:
To build the first stage of the dividend discount model we refer to our forecasted financial statements. During this period, we made the
assumptions that the payout ratio will be equal to its historical average of 36% and that the cost of equity will be stable. During the high-
growth phase we forecast the CAGR of earnings to be equal to 14,22%
TRANSITION PERIOD:
During the transition period the EPS growth rate will decline over time to reach the growth rate in stable phase which is 3%. Following the
assumption made in our DCF Orpeas beta will move toward the stable beta as the capital structure converges toward the industry average,
the payout ratio will also move overtime to reach its stable level.
Year: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Growth rate : CAGR : 14,22% 13,50% 11,00% 8,50% 6,00% 3,00%
EPS:
2,92
3,31
3,81
4,28 4,97
5,64
6,26
6,79
7,20
7,42
Payout Ratio: 36% 36% 36% 36% 36% 43,23% 49,96% 56,69% 63,42% 70,15%
Dividend:
1,05
1,19
1,37
1,54
1,79
2,44
3,13
3,85
4,57
5,20
Beta: 0,86 0,86 0,86 0,86 0,86 0,86 0,83 0,79 0,76 0,72
Cost of Equity: 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 6,51% 6,89% 7,02% 7,05%
Present Value:
0,99
1,06
1,15
1,22
1,34
1,73
2,08
2,40
2,66
2,83
STABLE GROWTH PERIOD:

Stable Growth Phase
Growth Rate in Stable Phase = 3,00%
Payout Ratio in Stable Phase = 68,78%
Cost of Equity in Stable Phase = 7,05%
Terminal Value = 132,32

Present Value of Terminal Value = 71,86
Estimated Intrinsic Value = 89,32

We made the same assumption than in our DCF model:
During the stable growth period, we normalize the risk-free rate to 2,5% versus 0,48% in the first years of our D.D.M.
As a result of Orpeas strong competitive advantage and the sectorial specificity, the return on equity will be equal the cost of
equity plus 3% which is line with the assumption made in our D.C.F. model given that return on equity is amplified by financial
leverage.
With a growth rate of 3% and a return on equity equal to 10,05% the stable payout ratio calculated from fundamentals is 68,78%
TERMINAL VALUE CALCULATION:

To estimate the terminal value, we choose to use the Gordon Growth Model instead of a multiple using historical average because the P/E
ratio wont be stable overtime due to the declining growth rate and the declining risk due to change in position within the corporate life
cycle. However, if we had chosen to use a justified P/E* from fundamentals we would have find a justified P/E of 15,73 indicating a
terminal value of 117 which is not so far from the terminal value found using the Gordon Growth Model.
*Justified Trailing P/E = (Payout*(1+g) / (r-g)
Our dividend discount model suggests an intrinsic value of 89,32 per share for our base case scenario which is close to the previous
intrinsic value calculated with our DCF model thus strengthening our buy recommendation.
APPENDIX Q: MONTE CARLO SIMULATION (DDM)

To deal with the uncertainties regarding key inputs in our DDM model we did a Monte Carlo Simulation accounting for 4 variables. Our
Monte Carlo analysis simulated 15,000 outcomes which were equally weighted. Our assumptions are described below:
Factor Variable Distribution Parameters

Economic Moat R.O.E in excess of Cost of Equity Uniform 2% : 4%
Growth Opportunities Revenue CAGR High Growth Period Normal x : 15,5% s : 2%
Dividend Distribution Policy Payout High Growth Period Uniform 35% : 50%
Systematic Risk Levered Beta Stable Period Uniform 0,62 : 0,82
The DCF model produced a median intrinsic value of 89,08 per share and 60,99% of the outcomes resulted in a buy recommendation with
a price target of at least 83,8 thus outperforming the market, we observe that the distribution is positively skewed with a tail longer on
the right side than the left side.
Statistics
1st Quartile 81,28
Mean 89,92
Median 89,08
3rd Quartile 97,74
Standard Deviation 12,26
Skewness 0,41
Kurtosis 3,29
7,00%
21,26% 17,75% 60,99%
6,00%
5,00%
4,00%
3,00%
2,00%
1,00%
0,00%
60 63 67 71 75 79 83 87 91 94 98 102 106 110 114 118 122 125 129 133

Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the
content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject companys securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be
reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information
is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment
advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by
any individual affiliated with CFA Society France, CFA Institute or the CFA Institute Research Challenge with regard to this companys stock.

CFA Institute Research Challenge

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TEAM N EQUITY RESEARCH

mistreatment or epidemic, failure to successfully integrate acquisitions, increase

integrated by large players.

Sources : Company, Team Estimates

LT Borrowings FINANCIAL ANALYSIS

LT Operating Leases Net Profit Margin

Sources : Company, Team Estimates Return On Equity

Current Ratio 0,67 0,72 0,78 0,81 0,81 0,80 0,80

Figure 14 : EBIT Margin Days of Payables Outstanding

Source : Bloomberg, Team Estimates

Sources : Company, Team Estimates

Figure 21 : Zero Coupon Inflation Swaps REVENUE GROWTH

MONTE CARLO SIMULATION

RHC - TEV/LTM EBITDA

Peer Group Average EV/EBITDA

Source : Team Estimates

APPENDIX A: ADJUSTED HISTORICAL AND PROJECTED FINANCIAL STATEMENTS

AUDIT AND RISK:

Board Structure Moderate

Shareholder Rights Low

Audit and Risk Low

APPENDIX E: DEBT STRUCTURE AND SCHEDULE

Issuer Rank Tranche Maturity Principal Due()

2016 2017 2018 2019 2020

OPERATING LEASES COMMITMENTS:

APPENDIX F: RETURN ON EQUITY ANALYSIS

R.O.E Decomposition - LTM Basis

THREAT OF NEW ENTRANTS

RIVALRY AMONG COMPETITORS

Threat of substitutes Threat of new entrants

Unlevered Beta : 0,41

Equity Debt Capital

Equity Debt Capital

APPENDIX K: ECONOMIC VALUE ADDED

Korian (KORI FP)

Company KORI SPI RHC ATT CAPIO MDC

APPENDIX M: MULTIPLE ANALYSIS

PREDICTED TRAILING EV/EBITDA

Historical Enterprise Value / LTM EBITDA

ORP - TEV/LTM EBITDA KORI - TEV/LTM EBITDA

RHC - TEV/LTM EBITDA Peer Group Average EV/EBITDA

Justified EV : 7 463 570 086,71

PREDICTED TRAILING P/E

ORP - P/E KORI - P/E RHC - P/E Average PE

Name P/E Earnings Growth Rate PEG

CAPITAL EXPENDITURES AND WORKING-CAPITAL INVESTMENTS:

Acquisitions of Operating Assets / Sales Increase (%)

Other Capital Expenditures / Sales Increase (%)

Net Real Estate / sales increase (%)

Zero Coupon Inflation Swaps for Eurozone Bonds

CALCULATION OF INTRINSIC VALUE:

Present Value of terminal F.C.F.F. 13 522,84

Intrinsic Value Per Share: 89,82

APPENDIX O: MONTE CARLO SIMULATION (DCF)

Factor Variable Distribution Parameters

APPENDIX P: DIVIDEND DISCOUNT MODEL

STABLE GROWTH PERIOD:

Terminal Value = 132,32

Estimated Intrinsic Value = 89,32

TERMINAL VALUE CALCULATION:

*Justified Trailing P/E = (Payout*(1+g) / (r-g)

APPENDIX Q: MONTE CARLO SIMULATION (DDM)

Justified Trailing P/E = (Payout(1+g) / (r-g)