ORANGE: BUY

MISSING THE POINT

Following the much anticipated and recently forgotten French consolidation announcement yesterday, we think the market was focusing on the wrong things in ORA FP

The feedback yesterday was that Orange benefits the least, it will not get spectrum like Iliad, and will not realise synergies like Numericable or Bouygues. This may be the case, but we think it misses the point.

Orange will benefit from mobile churn given SFR’s poor network and 48% of French mobile subs. It will also benefit in fixed with the inevitable loss of Bouygues’  EUR19.99 offer which has been choking margins to an extent.

Orange is trading on 5.5x next years Ebitda. It’s nearest competitor has just been valued on 14.5x. I’m not saying that is what Orange is worth but with 3 players, stabilising prices and an effective cost save plan is it worth the sector multiple? Putting it on 6.5x would get you to EUR19

The risk of Martin Bouygues or the French economy minister saying no are what’s holding it back currently in our view.

If the former were to happen he would face a shareholder backlash given the price being offered.

Emmanuel Macron’s worries are likely to be placated by assurances from Altice’s CEO this afternoon.

But we can understand why you might only want half a position today and then adding more when the above concerns abate: BUY