*** French Telcos
- With 4G failing to live up to initial expectations and newly listed players emerging, we look at
potential M&A combinations in the French telco space.
- 4G is not going according to plan
With Iliad integrating 4G into its EUR20/month price point, Bouygues Telecom has rapidly cut 4G
pricing back to 3G levels, and Orange is now giving up partially on ARPU uplift hopes as well. We
have once again cut our French mobile service revenue estimates.
- We doubt Bouygues can disrupt the fixed-line market
In our view, Bouygues cannot afford to simply cut its core triple-play prices. We expect a 4G-based
home broadband with a limited TV service and do not foresee a significant impact in the market.
- M&A back to the forefront – Potential for EUR3bn–7bn of value creation
With Numericable (=) and Altice listed, SFR spun-off by June, Bouygues under pressure, Iliad
pragmatic and a more open government, M&A is looming. In fixed-line, Numericable-SFR is likely.
In mobile, we now attribute 20% probability to Iliad-Bouygues but still zero to other combinations.
A number of scenarios would destroy value for Orange (=), on which we remain Neutral.
- Vivendi upgraded to Outperform – Upside from Telco consolidation and Media turnaround
Vivendi ex-SFR is deleveraged, returning to growth and trading broadly in line with Media. We now
value SFR at EUR15bn. We play the Numericable-SFR deal via Vivendi rather than Numericable.
- Bouygues: when bad news is good news – Upgraded to Neutral, TP EUR29 (from EUR23)
We have been guilty of focusing too much on earnings and not enough on the improving chances
of M&A. However, even assuming Bouygues Telecom is sold for EUR5bn, we see limited upside.
- Iliad (+) remains the structural winner
We expect Iliad’s EBITDA to double by 2017e, driven by mobile market share gains (tapping the
huge subsidised segment) and margin uplift (network rollout). TP trimmed to EUR210 vs. EUR220.
*** KPN
- Upgrading to Outperform, TP raised to EUR2.90 (from EUR2.35)
We upgrade KPN to Outperform with a new TP of EUR2.90 (8% upside). Two things have changed
over the last month, in our view. We believe the risk of a disruptive entry by Tele2 has diminished
and the probability that the sale of E-Plus will be approved has increased. Admittedly, the stock
has already had a nice run (+19% rel. over 1m), but it still screens attractively in a sector context.