Aging Demographics And Higher Occupancy Will Drive A Strong Earnings Recovery

Catalysts

About emeis Société anonyme

emeis Société anonyme operates nursing homes and healthcare facilities across Europe, providing long-term care and medical services for an aging population.

What are the underlying business or industry changes driving this perspective?

• Ongoing demographic shift toward an older population with rising dependency needs is driving demand for nursing homes and care services, supporting multi year revenue growth and higher asset utilization that could bolster earnings.
• Systematic improvements in occupancy rates toward and above pre pandemic levels, particularly in France and Germany, are creating operating leverage and may continue to lift EBITDA margins and cash generation.
• Tight operational discipline through cost rationalization, workforce optimization and standardized best practices is aimed at structurally reducing cost intensity, which could translate into margin expansion and support net income recovery.
• Asset light growth and innovative real estate partnerships are designed to release capital from property while keeping operational control, reducing net debt and leverage and freeing resources to reinvest in care activities that may enhance returns on equity.
• Improved free cash flow and lower development CapEx, combined with selective projects in markets with rising care needs, may help the group grow EBITDA at a solid pace and progressively improve net margins.

Assumptions

This narrative explores a more optimistic perspective on emeis Société anonyme compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming emeis Société anonyme's revenue will grow by 5.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -5.1% today to 1.5% in 3 years time.
• The bullish analysts expect earnings to reach €103.6 million (and earnings per share of €0.62) by about December 2028, up from €-292.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €-75.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 36.2x on those 2028 earnings, up from -7.8x today. This future PE is lower than the current PE for the GB Healthcare industry at 36.8x.
• The bullish analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.72%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The turnaround still rests on relatively low occupancy levels in key markets such as France and Germany, and management acknowledges that margins remain below target. Any slowdown in the pace of recovery or renewed reputational issues like the recent TV report in Ireland could cap pricing power and limit further occupancy gains, which would pressure revenue growth and EBITDA margins over the long term.
• The business model is becoming increasingly dependent on asset light structures, disposals and complex real estate partnerships that target high IRRs for external investors. This may structurally raise the group’s long-term rental and financial burden if real estate yields or funding costs rise, which could constrain free cash flow and delay a sustained recovery in net income.
• The group’s leverage ratio, even after planned deleveraging, remains elevated and covenant waivers and creditor approvals are still required for key transactions. Any disruption in disposals, higher interest rates or tighter bank conditions could stall balance sheet repair and divert cash away from operations, limiting earnings growth and net margin expansion.
• Structural cost pressure in healthcare and nursing, including tight labor markets and politically sensitive regulation in core countries such as France and Germany, could collide with management’s plan to optimize staffing and reduce cost intensity. This would make it harder to extract operating leverage from revenue growth and could compress operating margins and EBITDA.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for emeis Société anonyme is €17.5, which represents up to two standard deviations above the consensus price target of €13.28. This valuation is based on what can be assumed as the expectations of emeis Société anonyme's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €17.5, and the most bearish reporting a price target of just €7.9.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be €6.8 billion, earnings will come to €103.6 million, and it would be trading on a PE ratio of 36.2x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of €14.2, the analyst price target of €17.5 is 18.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.