Eur80 if takeout
Numericable-SFR (Top Pick, PT €70.00/share) - large synergy potential. The stand alone investment case for Numericable-SFR is extremely attractive in our view. Indeed, based on current cost cutting
estimates, our forecasts imply that the company yields 10% FCF in the coming years. However, given the
focus on costs, coupled with the disruptive behaviour of Bouygues Telecom, there is notable pressure
on revenues. Thus, the strategic rationale for a deal is not just synergies from costs/capex, but also from
an improved revenue outlook in a more rational market. We estimate a deal would generate synergies
with a net present value of c€15bn and note that our upside case valuation for the company is €80.00/
share, in the event of a takeout.
Iliad (Outperform, PT €279.00/share) - a beneficiary of remedies. Being the smallest operator in France,
Iliad would of course expect to receive healthy remedies in a consolidation scenario. In our base case,
we assume that it receives 2x10MHz of 800MHz spectrum, some retail stores, and possibly tower
assets for €1bn. In our note, Iliad On the Road with RBC - Market share and Margins, we argued that
consolidation would lead to Iliad's ability to attain market share (both mobile and fixed) AND upselling
mobile subscribers to the €20/month package would be greatly improved. Our upside case valuation
for Iliad, which is predicated on the deal, is €330.00/share.
Orange (Outperform, PT €17.00/share) - may have to play its part. Orange has responded to press
conjecture regarding French consolidation by confirming that it isn't part of any talks or deals at this
point, but is open to discussions about consolidation. We believe Orange has a part to play, which may
come in the form of it having to take on Bouygues' Telecom's 8-9k workforce. At its Capital Market's Day
Orange highlighted that of its 100k domestic workforce, 25k would leave by 2020 through retirement,
and that it intended to employ an additional 1.9k employees in 2015/16 - thus we believe there is some
flexibility for the company. Our upside case valuation for Orange, partially reflecting an improved French
market, is €19.00/share.