Company and regulator discussions at our Telecom & Media conference suggest a
benign outcome for October’s 700Mhz spectrum auction is increasingly likely. We
update forecasts assuming a €0.75/Mhz/POP spend, Orange and Iliad taking
2x5Mhz paired, and NUM-SFR and Bouygues 1x5Mhz paired. Our 2Q operational
and pricing review suggests no step change in relative momentum, with NUM-SFR
ceding fixed subscriber share to peers, but delivering gross adds ARPU ahead of
blended. A two-tier mobile market persists, with 4G differentiation at Orange and
Bouygues growing, in our view. The race for fibre continues, with Altice indicating a
willingness to extend coverage beyond the 15m households/2020E plan. With 4 to
3 mobile consolidation seemingly off the table for now, we prefer exposure to
Orange and Iliad (OW) vs. NUM-SFR, Altice, Bouygues (EW).
preferred picks in France. Orange: our SoP PT is €17/shr (€18 prior), implying 23%
potential upside. Trades on 5.8x 2016E EV/EBITDA, on 12x EV/OpFCF. Iliad: our SoP PT
is €230/shr (€260 prior), implying c.19% potential upside. Trades on 7.7x 2016E
EV/EBITDA, 21x EV/OpFCF. NUM-SFR: our SoP PT is €51/shr (€52 prior), implying
c.16% potential upside. Trades on 8.7x 2016E EV/EBITDA, 16x EV/OpFCF. Altice: Our
SoTP PT is €23/shr, implying -3% downside (our former PT was €100/shr. This move
reflects the change in share count/equity distribution with the cross border merger of
Altice and Altice SA, and the subsequent creation of the A and B shares. Our coverage is
of the A share.) It trades on 9x 2016E EV/EBITDA, 16x EV/OpFCF. Bouygues: our SoP
PT is €36/shr (€38 prior), implying c.6.5% potential upside. Trades on 5.1x 2016E
EV/EBITDA, 10x EV/OpFCF.