Altice – Growth priced in
We cannot rule out a new offer for SFR, but the timing is uncertain. Altice is improving across the board and may deliver above-sector growth rates on the back of the US, but this is well reflected in the current premium and an above-average leverage requires some extra compensation.
Altice shows willingness to raise stake in SFR
The acquisition of a 5.2% stake in SFR in an off-market transaction and the decision to appeal AMF’s decision indicates that Altice still has some willingness to increase its exposure to SFR and pay at least the same price (1.6x ratio, implied EUR25.5 per SFR share). However, the exchange offer has been terminated and we do not expect an imminent offer. But Altice may resume its offer, particularly in a scenario of French mobile consolidation although this time we think the deal would be structured in a different way, with Bouygues and Altice most likely teaming up. The economic benefits of such an integration are hard to ignore (NPV of c. EUR7bn) and although not in our estimates, such a scenario would provide some upside to Altice.
We still prefer SFR to Altice
We think Altice can deliver higher growth than European peers and SFR over the coming years (a 6.8% EBITDA CAGR over 2015-18E, driven by the US at 9.8%, with SFR at 4.4% and sector at 2%), but this is well reflected in the trading premium (Altice 7.6x EV/EBITDA 2017E, sector 6.7x, SFR 6.1x). Altice’s 2018 EquityFCF yield of 9.4% (SFR 7.3%, sector 6.8%) is compensation for higher debt (net debt/EBITDA 2017 5.0x, SFR 3.5x, sector 2.2x). We still see more upside at SFR (18% vs. 2.5%).
Altice raises stake in SFR
An offer is uncertain but Altice is probably still interested in raising its stake in SFR ahead of a potential consolidation deal in France. We adjust our TP and estimates on the back of the likely new management fee but still see some decent upside based on above sector EBITDA growth estimates
French consolidation cannot be ruled out
However, the exchange offer has been terminated and we do not expect an imminent offer. But Altice may resume its offer, particularly in a scenario of French mobile consolidation that in our view is still possible (more likely after French presidential elections in spring 2017). This time, we think the deal would be structured in a different way, with Bouygues and Altice most likely teaming up their respective telecom units. The economic benefits of such an integration are hard to ignore (NPV of c. EUR7bn) and although not in our estimates, such a scenario would also provide solid support to SFR.