EUR 850.00 For Business Accounts Only

Morningstar | Iliad Reports 3Q Revenue and Subscriber Numbers; Shares Remain Undervalued

Iliad reported third-quarter revenue growth of 1.7% year over year, spot on with our full-year projection. We expect to maintain our EUR 143 per share fair value estimate and narrow moat rating. We believe the shares are undervalued. Revenue in France, excluding low-margin handset sales, declined 0.4%.

Revenue increased 5% in its wireless division. The firm grew its subscriber base 1% to 13.5 million from the year-ago period, but its base actually declined in the third quarter. Iliad continues to successfully move subscribers from its low-end priced plans to its higher-priced plans, increasing its average revenue per user, or ARPU, which was the main driver of revenue growth. We expect the firm will continue to focus on upselling its subscriber base in order to increase its ARPU and revenue.

On the fixed-line telecom side, Iliad’s customer base only grew slightly, which was more than offset by a 5.3% drop in its ARPU. However, it added 100,000 fiber-to-the home, or FTTH, subscribers during the quarter and its FTTH base is now 835,000. These customers have higher ARPU, so as this base continues to grow, it should help the firm’s ARPU.

While the French market remains difficult, Iliad is having big success in Italy. After just four months of operations, it now has 2.2 million wireless subscribers. It has also increased its price to EUR 7.99 per month from an initial launch price of EUR 5.99. We expected the firm would need to raise prices after it paid EUR 1.2 billion in the recent Italian spectrum auction. We think it may need to raise prices further, though this offsets some of its aggressive pricing strategy.