We remain Buy rated on Altice and NUM post 4Q15 results
4Q15 highlighted a strong improvement in operational performance across
Altice’s markets, France in particular. We remain confident of
management’s ability to stabilise group revenue over the medium term
and to deliver significant EBITDA growth through efficiency savings. We
now forecast revenue/EBITDA CAGR of 1%/4% over 2016-20 across the
group. Most importantly, we believe the pending announcement on
shifting French asset ownership due to the potential Orange-Bouygues
merger could be a material positive catalyst for both stocks.
We see significant value creation from French consolidation
The companies’ self-imposed deadline is March 31 for the Orange-
Bouygues merger discussions (Les Echos, March 13, 2016). We continue to
expect Altice/NUM to take network assets, spectrum and subscribers as
part of any deal. Our analysis suggests the merger could create significant
value for the overall French market, driven primarily by EBITDA margin
expansion of 1.5-2 pp across all operators as a result of lower churn and
competition in a three-player market (as per the experience of other inmarket
deals).
Altice (Buy): Focus on integration and efficiencies, lower M&A risk
We remain confident of ATC’s ability to deliver 8 pp of margin expansion at
the group level over the next three years (supported by Portugal as well as
France). Management’s focus on integrating existing assets over the near
term likely limits the uncertainty of further M&A. 2016 marks a peak year
for capex, and higher promotional activity/delayed STB upgrade cycle are
also likely to weigh on growth in 1H16. But we argue the capex supports
the medium-term growth opportunity and model capex falling from 2018.
At our ROIC-based 12-month price target rises to €19 (from €17)implying
16% upside and a 10% 2018E FCF yield.
Numericable (Buy): Operational improvements justify investment
4Q15 saw a material improvement in fixed/mobile KPIs but questions remain
on the sustainability of profitable top-line trends. We remain confident of
underlying cost efficiencies that boost French margins 9 pp (to 44%) by 2018
driving 8% 4 year EBITDA CAGR. Our ROIC-based 12-month price target rises
to €49 (from €46.2), implying 31% upside and a 10% 2018E FCF yield.