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Orange SA ADR ORAN

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Refreshed Thesis for French Telecoms Orange, Iliad, and Bouygues; Orange Downgraded to No Moat

Javier Correonero Equity Analyst

Analyst Note

| Javier Correonero |

After refreshing our thesis, we rate all the three French telecom companies, Orange, Iliad, and Bouygues, as no-moat companies with stable moat trend ratings. We downgrade Orange’s moat rating to none from narrow as we believe an advantaged position in France is not enough to generate a moat for the overall company, as we see the rest of its businesses as not competitively advantaged with Spain being value-destructive. For Iliad and Bouygues the no-moat ratings are mainly based on a weaker fixed-line asset base position in France compared with Orange. As a general framework, we believe European telecom moats mainly come from efficient scale, which tends to be stronger in fixed networks than mobile ones, as the former are usually more complicated and costly to replicate. The number of players in each market and the regulatory framework are also important, as they can reinforce or weaken the efficient scale argument. Our fair value estimates are EUR 13.90, EUR 165, and EUR 39 for Orange, Iliad, and Bouygues, offering 30%, 22%, and 17% upside, respectively.

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Company Profile

Business Description

Orange is the incumbent telecom operator in France, formerly known as France Telecom. The company operates fixed and wireless businesses in France, where it is the market leader ahead of Iliad, Bouygues and SFR. Orange also has fixed and wireless (convergent) operations in Spain, Poland, Belgium, Luxembourg and Central Europe (Romania, Slovakia, Moldova). Around 15% of revenue comes from emerging African markets, where the company only operates wireless networks and 20% comes from the enterprise segment, which serves companies with more than 50 employees in France and internationally.

Contact
78, rue Olivier de Serres
Paris, 75015, France
T +33 144442105
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Dec 31, 2008
Fiscal Year End Dec 31, 2021
Stock Type
Employees 142,150

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