Morningstar | ATC Updated Star Rating from 22 Nov 2018
Altice reported weak third-quarter revenue growth, but strong subscriber growth, which should be a positive for 2019. The firm reported revenue fell 6.3% year over year. However, this was on a pro forma basis as if Altice USA was spun off at the end of 2016 and isn’t comparable to our estimate. We expect revenue will drop 39.8% versus Altice’s reported 2017 revenue, which included Altice USA. However, SFR, the firm’s French operation, added 378,000 wireless postpaid subscribers, and 166,000 broadband customers, including 64,000 on fiber-to-the-home, or FTTH, in the quarter. This is SFR’s best quarter for additions since 2004. Thus, we expect Altice can make up this year’s revenue shortfall in the future and don’t expect to change our fair value estimate or narrow moat rating. We believe the shares are fairly valued.In France, the firm’s revenue fell 7.5% as its wireless postpaid average revenue per user, or ARPU, declined 13.3% to EUR 22.40, which more than offset the new subscriber growth. However, new customers weren’t around for the whole quarter and we expect ARPU declines to moderate as competition becomes more rational. On the call, management said that pricing so far in the fourth quarter has been steadier. We have long expected Altice would be able to right its ship and return to subscriber growth, so we were pleased to see that occur.
Altice also performed well in Portugal, with subscriber growth in both FTTH broadband and postpaid wireless subscribers. While its revenue declined 0.3% from the year ago period, it grew 1.8% sequentially, which provides evidence that the worst is over in Portugal. While we expect a small revenue decline for the entire firm in 2019, we believe Altice has shown good signs of the turnaround we’ve expected and project the company will generate revenue growth in 2020 and beyond. On the cost side, the firm is in line with our expectations. It generated an EBITDA margin of 37.2% versus our full-year projection of 37.1%.
Altice Europe is a provider of cable, fiber, mobile, telecommunications, content and media in Western Europe (comprising France, Portugal, Belgium, Luxembourg1 and Switzerland), the United States of America (U.S.), Israel, the Dominican Republic and the French overseas territories (comprising Guadeloupe, Martinique, French Guiana, La Reunion and Mayotte). Through its various business operations, Co. provides fixed services, mobile telephony services (other than in the U.S.) and media and advertising services to B2C and B2B customers in all of the geographies in which it operates. In addition, Co. offers a variety of wholesale and other services.
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