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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

Bouygues is a French conglomerate made up of a disparate range of assets: a construction business, a TV business, and a telecom business. It is one of the biggest construction companies in France and Europe with construction sales of around EUR 25 billion-EUR 30 billion and one of the four telecom operators in France, with both mobile and fixed operations and EUR 6 billion in revenue. It is also the owner of TF1, one of the main media and TV companies in France.

32 avenue Hoche
Paris, 75008, France
T +33 144201000
Sector Industrials
Industry Engineering & Construction
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2020
Stock Type
Employees 133,359

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