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.