European Stock Story of the Month – Orpea

I took some time out of work last week thinking I’d have a break. I look after my two teenagers at home and so I thought I’d fill the freezer, get food for the menagerie, and see how they all got on whilst I went down south to catch up with my elderly parents now both in their 80’s. What I hadn’t counted on was that their carer would be ill for the entire bank holiday, leaving me to help out and bear a hand. Having spent the thick end of three decades in the very cushy industry of financial services, it made me think about some of the real issues facing adult social care and the challenges faced by all involved. This is a job which requires patience, selflessness and above all, a huge generosity of spirit.

A few years ago, I read a piece by The Kings Fund & the Nuffield Trust entitled Home Truths, Social Care for Older People[1], which highlighted the predicted deficit of one million care givers in the UK by 2037. That’s only 16 years away. Brexit plus restrictive travel could exacerbate and accelerate this very frightening prophecy. At Castlefield we try to understand long term trends and identify investment opportunities in sustainable businesses which rise to the challenges of tomorrow’s world. This month’s stock story is Orpea, (  the French company, who are creating a global based franchise in care for the elderly. Orpea is the European leader in global dependency, long-and medium-term physical and psychiatric care. The company offers long-term care facilities (nursing homes), post-operation, acute and rehabilitation clinics, psychiatric care clinics, and home care, running 1,114 facilities across 23 countries[2]. Founded in 1988, and listed on the Paris stock exchange in 2002, Orpea was a French-only player until 2004, when it entered neighbouring Italy. International expansion, which has driven growth since then, only really took off in 2006.

We are impressed with the social side of Orpea’s skills set, playing into one of our sustainability angles. The average customer is 90 years old, and the average length of stay is 18 months. 75% of patients have dementia, which means this is very far from an independent or assisted living accommodation model. Strict quality control is adhered to across the group. Whether it be daily dashboards for facilities, facility certification or satisfaction surveys, there is only one way to do things, whether it be Belgium or Brazil - the Orpea way.   All staff are rigorously trained using a ‘manual’ which is common to the entire group. A cleaner must adopt a special process to clean a room, as these are not normal hotel rooms with numerical targets which are typically imposed on housekeepers. Cleaners need to be trained to adapt to the constant physical presence of patients, who may behave very differently on any given day. Finding, recruiting and motivating staff is a real issue, and the company is adamant that its 68,000 staff are nurtured as much as its patients. 79% of staff are on permanent contract, which is a very high figure within the industry[3]. Orpea understand about their main asset, their staff, targeting not only training, but qualification attainment and internal promotion. This is not to say that they are perfect. We have collaborated with Orpea senior management and an association of Global Unions on better communication between the company and powerful unions in certain countries. The industry is complex, and we want to understand the nature of challenges and give our input where possible. Interestingly, although the European leader in the space, Orpea will not invest in the UK due to the lack of proper regulation. It would be interesting to see what the Care Quality Commission have to say about that!

Scale is very important, and growth is driven by a mix of new build and existing facility acquisition. Regulation differs all over the world, and where it might still be legal to provide a 20 person-per-room facility in the Czech Republic, Orpea are building single-room occupancy facilities in Prague where they know demand for quality care is growing. Facing competition in the consolidation of a fragmented market, Orpea will often opt for greenfield expansion, and their funding capability is very well developed. They combine ownership and leased properties across the portfolio. We like the dynamic of this steadily growing market and are adamant that quality of care provision is the key variable to the success of the group. This tallies with the 92% satisfaction rate in the latest survey of families and residents. It’s a hard job to please customers in this sort of business, and families are very engaged as well. This is borne from strict discipline, experience, technical competence and that other key ingredient of success – very hard work.

It was lovely to see the aged Ps, but I came back home rather in need of a break. I recounted this story to someone much wiser than me, to which she replied, ‘old age is very much overrated, but it does beat the alternative’. I suspect that we should on average, expect to live longer than our parents and grandparents due to modern medicine and technology. I will end with this. If we plan on living for a long time, we will need care, which is very expensive. One thing is clear – we will need to save more and for longer.

Written by Rory Hammerson


[1] (p25)




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