Company Reports

Although no-moat Orange's results were aligned with consensus estimates, shares declined by 4% during the trading session. Revenue of EUR 9.85 billion and EBITDAaL of EUR 2.41 billion (excluding Spain) grew by 2.1% and 2.3% organically, respectively, both aided by double-digit growth in Africa. This is in line with Orange’s guidance for 2024, which is set at low-single-digit growth in EBITDAaL. We are maintaining our EUR 13.40 fair value estimate. We believe Orange is faring well in general, making modest increases to its dividend, reducing capital intensity, and keeping financial leverage in check.

Orange delivered on its financial outlook for 2023, and has set targets for the next two years after the deconsolidation of the Spanish business and merger with MasMovil is complete. Revenue increased 1.8% organically to reach EUR 44.1 billion, driven by growth in service revenue, partially offset by an expected decline in wholesale service revenue. EBITDA after leases reached EUR 13 billion, in line with Orange’s ambition of low-single-digit growth, mainly supported by its Europe and Africa and Middle East divisions. The proposed dividend is EUR 0.72 per share, which Orange intends to raise to EUR 0.75 next year, a target we believe is achievable. Despite its tough position in Spain, we believe Orange is faring well, making modest increases to its dividend, reducing capital intensity, and keeping financial leverage in check. Orange’s midterm target is for net debt/EBITDAal of 2 times, lower than the average for European telecom businesses.

Orange operates in several countries, but its strongest region is France, where it enjoys a comfortable position as the incumbent operator and has good relationships with the government, which owns 23% of the company. Orange's strategy in France is simple: Maintain market share in mobile and fixed markets and try to offset potential pricing pressures with employee cost reductions, where Orange is limited by French regulations. Orange has also been the main installer of fiber-optic cables in France, which will result in better unit economics for the company in the long term as the payment scheme set by French regulators favors players that took more risks in the buildout phase. In the mobile segment, Orange has maintained a relatively stable market share for the past decade but with shrinking average revenue per user caused by Iliad’s entrance, which has pruned the company’s revenue. Over the past decade, Orange has managed to keep its EBITDA margins stable in France, offsetting low revenue growth with cost reductions. We expect this to be the strategy in the future.

Orange operates in several countries, but its strongest region is France, where it enjoys a comfortable position as the incumbent operator and has good relationships with the government, which owns 23% of the company. Orange's strategy in France is simple: Maintain market share in mobile and fixed markets and try to offset potential pricing pressures with employee cost reductions, where Orange is limited by French regulations. Orange has also been the main installer of fiber-optic cables in France, which will result in better unit economics for the company in the long term as the payment scheme set by French regulators favors players that took more risks in the buildout phase. In the mobile segment, Orange has maintained a relatively stable market share for the past decade but with shrinking average revenue per user caused by Iliad’s entrance, which has pruned the company’s revenue. Over the past decade, Orange has managed to keep its EBITDA margins stable in France, offsetting low revenue growth with cost reductions. We expect this to be the strategy in the future.

No-moat Orange continued its steady performance in the third quarter of the year. Revenue and EBITDA after leases were up by 1.8% and 1.4%, reaching EUR 11 billion and EUR 3.6 billion, respectively. Management reaffirmed its 2023 guidance, which now seems easily achievable. Capital expenditure was down by 7%, in line with the previous two quarters, thanks to the reduced capital intensity in France. We maintain our EUR 13.40 fair value estimate.

Orange continues delivering through 2023 and reached a 2.6% organic growth in revenue and a 1.0% organic growth in EBITDA after leases, or EBITDAaL, in the second quarter. Performance during the first half of the year is aligned with our forecasts and we believe Orange should not have trouble reaching its conservative guidance of slight EBITDAaL growth for the year. We like how Orange is performing during 2023, managing to defend its profits in a tough environment coupled with reduced capital intensity until 2025 as the bulk of fiber-to-the-home, or FTTH, investments in France is already done. We are maintaining our EUR 13.40 fair value estimate and see the shares undervalued at this point.

Orange operates in several countries, but its strongest region is France, where it enjoys a comfortable position as the incumbent operator and has good relationships with the government, which owns 23% of the company. Its strategy in France is simple: Maintain market share in mobile and fixed markets, and offset potential pricing pressures with employee cost reductions, where Orange is limited by French regulations. Orange has also been the main builder of fiber optics in France, which will result in better unit economics for the company in the long term as the payment scheme set by French regulators favors players that took more risks in the buildout phase. In the mobile segment, Orange has maintained a relatively stable market share for the past decade but with shrinking average revenue per user caused by Iliad’s entrance, which has pruned the company’s revenue. Over the past decade, Orange has managed to keep its EBITDA margins stable in France, offsetting low revenue growth with cost reductions. We expect this to be the strategy in the future.

Orange's first-quarter results did not bring any surprises as management reiterated its 2023 targets. EBITDA after leases grew by 0.5% in the quarter, in line with management’s 2023 guidance of “slight growth.” Capital expenditures excluding spectrum fell 4.9% in the quarter, also in line with company targets. We believe Orange is well positioned to meet its guidance given the relatively stable development in France, strong growth in African markets, and cost-containment measures. We are maintaining our EUR 13.40 fair value estimate.

Orange operates in several countries, but its strongest region is France, where it enjoys a comfortable position as the incumbent operator and has good relationships with the government, which owns 23% of the company. Its strategy in France is simple: Maintain market share in mobile and fixed markets, and offset potential pricing pressures with employee cost reductions, where Orange is limited by French regulations. Orange has also been the main builder of fiber optics in France, which will result in better unit economics for the company in the long term as the payment scheme set by French regulators favors players that took more risks in the buildout phase. In the mobile segment, Orange has maintained a relatively stable market share for the past decade but with shrinking average revenue per user caused by Iliad’s entrance, which has pruned the company’s revenue. Over the past decade, Orange has managed to keep its EBITDA margins stable in France, offsetting low revenue growth with cost reductions. We expect this to be the strategy in the future.

No-moat Orange's fourth-quarter and annual results were aligned with our forecasts, with revenue and EBITDA after leases coming in at EUR 43.5 billion and EUR 13.0 billion respectively, 0.6% and 2.5% organic growth. For 2023, Orange has guided for slight growth in EBITDAaL, a significant decrease in capital expenditures, and an increase in its dividend floor to EUR 0.72 from EUR 0.70. Orange also said it intends to raise its dividend floor to EUR 0.75 by 2025, with this news resulting in the stock being up almost 5% at the time of the writing. We maintain our EUR 13.40 fair value estimate.

Orange's third-quarter results did not bring any big surprises. Management reiterated its guidance for the full year, where it expects EBITDA after leases (EBITDAaL) growth of 2.5% to 3.0%. Although EBITDAaL has only grown 0.5% year to date, the 2.5% to 3.0% growth target seems realistic to us. Management expects the reversal of some cost effects in the last part of the year, which should bring a 5% EBITDAaL growth in the fourth quarter. On the energy side, we have seen some European telecommunication firms like Telia being hurt from rising costs. It seems like Orange will be unaffected for now, as management assured it is fully hedged from energy price changes for the remainder of 2022 and 90% hedged for 2023. This will provide more certainty on guidance and EBITDAaL growth ambitions going forward. We are maintaining our EUR 13.40 fair value estimate.

There were no surprises in Orange’s second-quarter results. Sales declined by 0.4% year over year while EBITDAaL grew by 0.5% thanks to strong performance in Africa and the Middle East, which continues to grow at double-digit rates. In France, the retail market remained stable with a 1.7% growth, but overall sales declined by 0.9% due to lower co-financing revenue. We remind that in France’s suburban and rural areas, other operators have the right to co-invest in Orange’s fixed lines depending on their market share, but this revenue stream is difficult to forecast and sometimes causes fluctuations in wholesale revenue. We are maintaining our EUR 13.40 fair value estimate.

Orange operates in several countries, but its strongest region is France where it enjoys a comfortable position as it is the incumbent operator and has good relationships with the government, which owns 23% of the company. Its strategy in France is simple: maintain market share in mobile and fixed markets, and offset potential pricing pressures with employee cost reductions, where Orange is limited by French regulations. Orange has also been the main builder of fiber optics in France, which will result in better unit economics for the company in the long-term as the payment scheme set by French regulators favors players that took more risks in the buildout phase. In the mobile segment Orange has maintained a relatively stable market share for the past decade but with shrinking average revenue per user caused by Iliad’s entrance, which has pruned the company’s revenue. Over the past decade Orange has managed to maintain its EBITDA margins in France, offsetting low revenue growth with cost reductions. We expect this to be the strategy in future.

No-moat Orange and MasMovil are confirming the recent reports in the Spanish press (Expansion), and announced they've started official discussions to merge their mobile and fixed businesses in Spain. The transaction would be done through a 50:50 joint venture with equal governance rights and a right to trigger an IPO. As we mentioned in our previous note, Orange’s business has been suffering in Spain since 2019 due to pressure from low-cost providers. MasMovil owns many low-cost brands like Yoigo and Pepephone, just the ones that have been harming Orange, so a merger would eliminate a lot of low-cost competition for Orange. It would also consolidate the Spanish market from four mobile network operators, or MNOs, to three, which normally results in more price stability. The deal values Orange’s Spanish business at 7.5 times EBITDA (after leases) and MasMovil at 9.9 times EBITDA, in line with other European peers. We maintain our EUR 13.40 fair value estimate for Orange, as Spain makes up less than 10% of the group’s EBITDA and the deal still needs approval from competition authorities.

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.

Orange announced it has entered into exclusive negotiations to acquire 75% of cable operator Voo in Belgium, based on an enterprise value of EUR 1.8 billion. The decision comes after Voo held conversations with 27 bidders. The acquisition price implies a 9.5 times enterprise value/EBITDA multiple before synergies (no indications on synergies have yet been provided), which we see as slightly high compared with other cable peers. We maintain our fair value estimate and no moat rating for Orange.

Orange operates in several countries, but its strongest region is France where it enjoys a comfortable position as it is the incumbent operator and has good relationships with the government, which owns 23% of the company. Its strategy in France is simple: maintain market share in mobile and fixed markets, and offset potential pricing pressures with employee cost reductions, where Orange is limited by French regulations. Orange has also been the main builder of fiber optics in France, which will result in better unit economics for the company in the long-term as the payment scheme set by French regulators favors players that took more risks in the buildout phase. In the mobile segment Orange has maintained a relatively stable market share for the past decade but with shrinking average revenue per user caused by Iliad’s entrance, which has pruned the company’s revenue. Over the past decade Orange has managed to maintain its EBITDA margins in France, offsetting low revenue growth with cost reductions. We expect this to be the strategy in future.

Orange closed an acceptable third quarter with the main headwind being lower wholesale revenue reported in France. Orange has historically been the main builder of fiber lines in less urban areas in France. Competitors have the right to co-invest in these lines based on market share, making upfront and recurring payments to Orange. Notwithstanding, wholesale revenue can have lumpy changes as it depends on competitors’ investment decisions. Wholesale revenue declined organically by 15.4%, also affected by strong growth performance during third-quarter 2020, and we anticipate a mid- to high-single-digit decline for the full year. Although we are trimming our fair value estimate to EUR 13.40 per share from EUR 13.90 after updating our 2021 wholesale forecasts as well as those for Spain, we believe Orange is showing an acceptable fundamental performance, with a stable position in France, a dividend covered by cash flow, leverage under control and a significant amount of fiber investments already accomplished.

Once again, no-moat Orange´s first-quarter results were penalized by weak performance in Spain, reflecting the challenging competitive environment this geography faces. Although the overall revenue decline in Spain softened compared with the last quarter, this was mainly explained by higher equipment sales but not from a turnaround in fixed or mobile offerings. Management announced a 12% headcount reduction in the country that we look favorably upon. Not surprisingly, the company took a goodwill impairment of EUR 3.7 billion due to the bleak outlook for the next couple of years. We are adjusting our forecasts for 2021 and 2022 but are maintaining our EUR 13.90 fair value estimate.

Orange operates in several countries, but its strongest region is France where it enjoys a comfortable position as it is the incumbent operator and has good relationships with the government, which owns 23% of the company. Its strategy in France is simple: maintain market share in mobile and fixed markets, and offset potential pricing pressures with employee cost reductions, where Orange is limited by French regulations. Orange has also been the main builder of fiber optics in France, which will result in better unit economics for the company in the long-term as the payment scheme set by French regulators favors players that took more risks in the buildout phase. In the mobile segment Orange has maintained a relatively stable market share for the past decade but with shrinking average revenue per user caused by Iliad’s entrance, which has pruned the company’s revenue. Over the past decade Orange has managed to maintain its EBITDA margins in France, offsetting low revenue growth with cost reductions. We expect this to be the strategy in future.