* Consolidation still the logical outcome
Despite recent events, we think consolidation is still the most likely
outcome, as Bouygues Telecom’s strategy does not seem sustainable and
the risk of an irreversible price war in fixed is looming. A break-up of
Bouygues Telecom is the most logical outcome, but Iliad will probably now
have to take the lead and bear the risks (overpayment, leverage and
cannibalisation).
* M&A options fairly valued for Orange and Iliad
The recent share price pullback suggests the M&A options are now fairly
valued for Orange and Iliad. Numericable stands to gain the most from
consolidation, given its higher mobile exposure and leverage.
* Numericable best pick based on synergies, growth and M&A
Numericable remains our preferred stock (TP upped from EUR49 to
EUR54), as a result of integration synergies, the M&A option and a longterm
superior competitive edge. Orange (Hold, TP upped from EUR11.0
to EUR11.5) looks fairly valued when non-recurrent items are factored in.
Iliad (Reduce, TP upped from EUR170 to EUR205) still looks slightly
overvalued and could face more operating or M&A-related risks.