Orange Looks Forward to 2022; Profit Growth and Reduced Capital Spending Expected

No-moat Orange is expecting to return to profit growth in 2022 after a flat 2021 fueled by healthy trends in France (stable), Africa (double-digit growth) and a recovery in the Spanish business. EBITDA (after leases) is expected to grow at 2.5% to 3.0% in 2022 compared with the flat performance in 2021. In addition to this, capital intensity is expected to decline in 2022 and 2023 as the fiber rollout in France is almost finished, causing an uptick in cash flow generation. Although these targets are not a surprise (they are in line with management’s midterm guidance given in 2019) we are pleased to see Orange is delivering. Orange shares have rallied more than 20% since December 2021 in line with other companies in the European communications sector, but we still see some upside compared with our EUR 13.40 fair value estimate, which we are maintaining.