EUR 850.00 For Business Accounts Only

Morningstar | Network Quality and Exposure to Emerging Markets give Orange an Advantage over French Competitors.

We view Orange as one of the prime beneficiaries of the movement to converged services (the merging of the traditional triple play of fixed-line telephony, broadband, and pay television with wireless telephony). When service bundling is combined with 4G and fiber, which help to differentiate its networks, we think Orange is well positioned for the macroeconomic trends hitting European communication markets. Orange now has 6.1 million convergent customers in France (60% of its retail broadband base), 3.1 million convergent customers in Spain (84%), and 1.3 million convergent subscribers in Poland (59%). Importantly, convergence is driving Orange’s average revenue per offer higher while reducing churn, which increases the lifetime value of a customer. Likewise, the firm’s fiber deployment is gaining traction. Orange now has 2.4 million customers subscribed to its fiber product in France, and at the end of September 2018, fiber passed 12.4 million homes (around 40% of the total). Similarly, in Spain, integration with Jazztel has performed better than expected, and Orange now has 2.7 million fiber subscribers, passing 14.1 million premises (about half the country). Orange is also enhancing its wireless footprint in Africa, one of the fastest-growing regions in the world. The firm exercised its option to increase its stake in Meditel in Morocco and began to consolidate this asset in July 2015. In 2016, Orange acquired operations in Liberia, Burkina Faso, and Sierra Leone as well as acquiring Tigo in the Democratic Republic of Congo to increase its size there. With operations in 20 African countries, we think the region presents significant opportunities and enhances Orange’s value.We think Orange has multiple opportunities that will lead to higher free cash flow and a growing dividend over time. Greater uptake of the converged offering, a focus on selling fiber access and 4G wireless, and an ability to reduce headcount as its civil servant employees retire should lead to improving revenue and EBITDA margin trends. We also expect capital intensity will decline, especially after 2020, as the firm progresses toward completion of its fiber network.