* Sell-off drives return to Neutral — With Altice “A” shares sharply down from their
June 26 peak of €32.25, and back into line with our target price, we upgrade the
stock to Neutral from Sell. We remain of the view that from here deals need to be
larger to make an impact, sellers will be more cognisant of the potential value and
financing could require equity or be constrained by higher financial leverage post
the PT and (if approved) Suddenlink acquisitions. However, we see the valuation
balance between organic and inorganic growth as more reasonable now.
* Rump multiples more reasonable, target price remains €24 — The implied EV
multiples for Altice excl Num-SFR, on our 2016 estimates, have fallen to 11.9x
EBITDA and 18.4x OpFCF (Figure 2). Our SOP-based target price remains €24 and
prices the stake in Numericable at our target price of €49. We are not revising
forecasts and include closed or announced acquisitions except NextRadioTV.
* We expect Num-SFR post-paid churn to ease — Using the company’s disclosure,
we estimate SFR’s consumer post-paid churn was 25% in 2Q15, up from probably
under 20% in 1Q15. We expect this to moderate from here but feel that churn
warrants more emphasis at the next results presentation. Consumer post-paid gross
adds perked up in June to 201k from an average of 137k in each of April and May.
Num-SFR’s revenue decline also eased qoq to -2.4% yoy proforma in 2Q15.
* French spectrum auction presents a risk — Late in 2015 France will auction six
2x5MHz spectrum blocks at 700MHz with a reserve price of €416m per block and
we expect Num-SFR to acquire two blocks for €1bn. Applications are to be
submitted by noon on 29 Sep 2015. We see a risk that the price is bid up quite
aggressively, especially if Bouygues seeks competitive advantage by trying to
squeeze Iliad out. We also see very little prospect of an in-country consolidation
move in French mobile before the pending 700MHz spectrum auction completes
and expect Bouygues to try to improve its FCF organically and take advantage of
the expiry of the Iliad roaming deal on the Orange network due on 20 Dec 2017.