Swiss Telcos
Orange/Salt: trading still weak, focused on mobile
* Orange CH results still weak as market share loss continues
Orange CH (#3 mobile operator rebranded to Salt in April) reported Q1 results (prerebranding)
with headline growth impacted by IAS 18 alignment and higher equipment
revenues after having started instalment payment offers from September 2014. Q1
revenues declined by 1.8% YoY like-for-like (vs Q4 +7%) whilst reported revenues
were +3% (vs +17% in Q4) due to lower equipment contribution. Adjusted EBITDA
declined by 3.4% YoY like-for-like (Q4 +7.7% YoY). Within the mix, postpaid net adds
were still weak at -9k (Q1/Q2/Q3/Q4 - 13k/6k/1k/6k) and ARPUs were under pressure at
-7%, due to price plan mix. Meanwhile, Net Debt/EBITDA increased to 3.9x (from 3.7x
in Q4), due to negative FX impact.
* Salt focused on mobile – No move towards convergence yet
Salt brand launch (on 23rd April) is creating a positive momentum in terms of qualitative
KPIs (brand consideration) but there was no indication provided on the subscriber
trends. At this stage, Salt proposition remains focused on mobile only with no clarity in
terms of move to convergence. We still think Salt is unlikely to be disruptive in the
Swiss market, given its high financial leverage (c. 4x ND/EBITDA), lack of fixed-line
proposition and a legacy subscriber base (2.2m) that would be impacted by price
competition. That said, if Salt is able to get access to fixed line via Swisscom/UPC, then
it might potentially be aggressive with convergence, although we doubt whether Salt’s
wholesale terms for fibre would be economically as attractive as those of Sunrise.
* M&A remains more likely
We think Xavier Niel could have a different strategy in Switzerland and his entry would
likely accelerate the consolidation in Switzerland between Sunrise and Orange.
* Swiss Telecoms market remains attractive
The Swiss telecoms market continues to remain attractive to us due to benign
regulation and rational pricing. Sunrise trades c.8% 2016E FCF yield, representing
discount to its Swiss peer, Swisscom, offering a 5% FCF yield. However, Sunrise offers
strong cash returns and M&A optionality.