COURBET

The market capitalisation of Courbet, prior to the announcement of the acquisition of the La Bourboule and Cannes property complexes, was €8m based on a quoted price of €1.20 per share. As Courbet was an empty shell with a negative equity of €2m at the time of last available accounts, this pre-announcement market capitalisation valued goodwill at around €10m, which is high. It is related to the reduced free float of Courbet (5%) and a low number of transactions on the stock market.

The valuation of empty shells is variable over time. It depends on a large number of factors, including the scarcity of shells available on the market in the first place, the quality of the balance sheet (current or potential litigation, etc.), the nature of the activity (allowing the use of possible tax losses carried forward), the costs of listing a new entity on a regulated market, etc. We do not have an example of an empty shell valued at €10m corresponding to Courbet’s EV at the end of 2021 (market capitalisation of €8m plus approximately €2m of partner debt due in June 2022). Moreover, Courbet is listed on a non-regulated market, which increases the shell value.

In June 2022, Courbet disclosed a NAV of €1.20 per share corresponding to the market value of the La Bourboule real estate complex, once the works are completed, with a fully operational hotel. This NAV by 2026-28 (AV estimate) does not take into account any discounting or risk of drift on the works budget to reach a unit of 130 keys. This NAV results from an independent valuation by experts, net of the acquisition price (€1.5m) and the works to be carried out, i.e. a gross new market value of around €17m or €2,000 per m² of floor space, or €138,000 per key delivered. In absolute terms, these figures can only be validated by the economic performance of the hotel itself at maturity, i.e. by 2026 at the earliest. For the time being, we consider them to be a high boundary with regard to transactions observable on the market for better-located hotels, or for well-placed luxury hotels of intermediate size, accessible for a slightly higher value (€20-25m per unit) and with a higher asset value (lower risk level).

As Courbet does not have SIIC status (REIT), it is automatically subject to corporation tax. This NAV, on which our price target is based, will depend heavily on the achievement of ambitious commercial performances which can only be validated by 2026-27 (occupancy rate, 130 keys in service, €130 invoiced per night in La Bourboule).

Courbet’s NAV at June 2022 (€1.20 per share) will be increased by the market value of the Cannes hotel acquired in September 2022. We expect the consolidated published NAV to be around €1.50 by 2025-27, close to our price target. It should be remembered that the Cannes hotel is not fully owned: its market value will therefore be discounted as the residual term of the Temporary Occupancy Permit is used up.

Our price target is essentially based on NAV and DCF metrics and results in a unit valuation of €1.50 per share. Although it is constructed differently, our target price is in line with the NAV published by Courbet in June 2022, to which is added the estimated NAV increment over Cannes and a future value creation supplement. The upside potential vs. the current price (c.25%) is mainly explained by the high market capitalisation of Courbet prior to the announcement (€8m for an empty shell).

Our price target is equivalent to an NAV (AV estimate) of €0.70 per share/La Bourboule, which takes into account economic performances lower than Courbet’s estimates for the La Bourboule hotel (Occupancy rate/Price per night/works budget). We add the expected increase in Cannes’ NAV (€0.35) as well as a premium of €0.45 per share (i.e. €6m net) to anticipate part of the value creation linked to the three acquisition projects announced in June 2022 (excluding Cannes). This anticipated value creation remains dependent on: i/ the materialisation of these projects; ii/ their subsequent individual analysis; iii/ the financing method chosen (issue of new shares for the equity portion, including the issue price parameter and possible dilution). This €6m increment in net value corresponds to value creation resulting from one or two establishments in conditions close to those in Cannes. It is thus a question of anticipating the value creation of Mr. Ott, his team, and their ability to identify investment objects with hidden value to be extracted in the medium term.

Due to the absence of flows, it is difficult to value Courbet by the DCF method. Only the actual performance of the hotel asset in the long term will make it possible to specify the value beyond the business plan we are drawing up, which is by nature imprecise given the absence of a business plan presented by Courbet. The amount of work and the commercial success will determine the magnitude of any subsequent value creation (NAV). Our valuation may therefore vary significantly in the future, whether favourably or unfavourably.

Note that, to our DCF value, we have added an intangible of €0.45 per share corresponding to the future value creation linked to the projects not yet announced. Note that Mr. Ott has extensive experience in all types of real estate matters, including hotels. His networks should enable him to identify significant investment targets that will create value in the future. This value creation would be based on an ex-post market value higher than the acquisition price, generating an incremental NAV. Depending on the nature of the assets received, it will however be necessary to assess the need to apply a discount linked to illiquidity (ex-post market capitalisation of Courbet vs. growth dynamics), to the absence of SIIC status (taxation of profits at the corporation tax rate, deduction of an increasing proportion of tax on unrealised capital gains to lead to the NAV) or symmetrically a premium linked to the yield and quality of the assets contributed/acquired.

There are no recent transactions that would allow us to determine a valuation of Courbet shares. The conditions for the acquisition of the 95% block of Courbet’s capital by the OTT group – including the price for the purchase of the partner’s debt – are not known. The market value of the Courbet shell before the announcement of the La Bourboule project is therefore not public.

There are currently no dilutive instruments currently or potentially in circulation. In the event of the issue of a dilutive instrument, we will be able to reason on a fully diluted basis by analysing the strike of the instruments issued or to be issued by virtue of subsequent delegations of authority from the Board of Directors (BSA, OC, others). It should be noted that a stock option plan is possible although We do not expect this to be dilutive to our share price target.

In other words, the determination of the issue price of the future Courbet shares to be created is left entirely in the hands of the current majority shareholder (Mr Ott). To our knowledge, there will be no blocking minority to counter a decision by the reference shareholder. As the current nominal value per Courbet share is €0.035 per share, any further massive dilution on the basis of the nominal value (without issue premium) would make the price per share converge towards its current nominal value. As a result, the final valuation per Courbet share could technically be significantly lower than the current share price in the event of a substantial issue at a low unit price. However, it should be noted that, given its 95% shareholding in June 2022 (89% estimated in December 2022), the OTT group is not sensitive to the unit issue price if it subscribes to its share of any capital increase.

La Bourboule is located in a Zone de Revitalisation Rurale and as such benefits from income tax exemptions. We may have to account for no tax in years 1 to 5, which could generate €0.02 of additional NAV later. The corporate income tax rate in Cannes is assumed to be normalized.

As Courbet is a development-oriented company, we do not expect any significant dividends in the foreseeable future. The cash generated by the activity will be reinvested in acquisitions and work on new units.