Orange SA

Euronext Paris – ORA

NYSE – ORAN

Orange is one of the largest operators of mobile and internet services in EMEA and a global leader in
corporate telecommunication services.

Orange SA is a France-based multi-service telecommunications

Ma rke t Fra nce
operator. The Company operates seven segments: France, Spain,
Europe, Africa & Middle East, Enterprise, International Carriers & S e ctor S e rvice s
Shared Services, Orange Bank.
Indus try Communica tions
 France includes all fixed and mobile communication S e a s ona lity non-Cyclica l
services to consumers and companies as well as services
for carriers. Curre ncy € - EUR
 Spain covers fixed line and mobile telephony and fiber. Excha nge NYS E Eurone xt
 Europe (Poland, Belgium, Luxembourg, Romania,
Slovakia, and Moldova) provides high-speed fixed and S ymbol ORAN
mobile broadband. La s t clos e € 10.78
 Africa & Middle East primarily operates in the mobile
markets but also provides telephony and fixed Internet Ma rke t Ca p. 28,91B
services. Avg. volume (3M) 11,937M
 Enterprise provides digital transformation support.
52 we e k ra nge 8.84 - 15.38
 International Carriers & Shared Services includes
international carrier and the activities of OCS and Orange Cha nge YTD -17.87%
Studio in content, among others.
Cha nge (12M) -22.61%
 Orange Bank provides mobile financial services.
Re comme nda tion Buy
Orange S.A. markets its products and services under the Orange
brand with 266 million customers, roughly 135 thousand Fa ir Va lue € 22.36
employees and a top-ten mobile network operator worldwide

Orange is a large dominant global company was formerly known as France Telecom and changed its name to
Orange S.A. in July 2013. Orange S.A. was founded in 1990 and is headquartered in Paris, France. The
company was owned by government and was privatized in 1998. As a part of restructuring & rebranding,
executives hatched a plan to get rid of about 22,000 workers as part of an overall restructuring.

In 20 Dec. 2019, France's leading phone and

internet provider Orange was found guilty Friday
of a string of employee suicides and its former
CEO was sentenced to prison for 6 months,
Since Nov. 2019., price of Orange SA, is
declining due to court sentence and then the
COVID19 pandemic with more than 25%
decrease in 6 months.
France economy
France houses the sixth-largest economy in the world and the third-largest economy in the European Union.
France holds nearly 40 of the world’s 500 largest corporations.
France is the most visited country in the world and maintains the third largest income in the world from tourism
with at least 79 million foreign tourists per year.
Top 3 Trade Partners in 2018: Germany, Italy, and Spain
France GDP was worth 2,890 billion US dollars in 2019 represents 2.39 percent of the world economy with
Services sector represents 70% of it.
80%
70%
60%
50%
40%
30%
20%
10%
0%
GDP %

Agriculture Contruction Manufacte Services Transport Utilities

COVID19 effect
Official figures showed that the economy shrank by 6% in Q1-20 after 0.1% in Q4-19, meaning that with two
consecutive quarters of negative growth, the country is now technically in recession.

The French central bank said that the economy will shrink by 1.5% for every 2 weeks of lockdown, the current
lockdown began March 17 with the worst affected segments of the economy to be construction, transport,
restaurants.

This is the worst performance since 1945.

The CAC40 traded higher for the last 3 days as French Prime Minister said that the country the lockdown will
start to be eased starting may 11th with schools progressively reopening and businesses will be free to resume
operations and religious services
Deaths/1M of
might allow to resume before the end Country Total cases Total deaths of
population
May if a gradual easing of lockdown USA
1,216,820 70,587 213
rules did not result in the rate of
Spain 250,561 25,613 548
coronavirus infections increasing.
Italy 213,013 29,315 485
UK 190,584 28,734 423
th
France ranked 5 in COVID19 statistics France 169,462 25,201 386
Orange Vs. Benchmark

Avg peer
Orange SA Industry AT&T Vodafone Telefonica China Mobile
companies
P/E Ratio TTM 10.92 20.64 14.21 14.99 - 19.19 8.45
P/BV MRQ 0.93 2.04 1.14 1.19 0.58 1.98 0.81
ROE TTM 8.78% 9.16% 6.39% 7.94% -3.68% 11.42% 9.89%
ROE 5YA 5.55% 10.70% 8.18% 9.62% -0.02% 11.83% 11.28%
ROI TTM 4.62% 4.81% 3.67% 3.35% -1.42% 3.13% 9.61%
ROI 5YA 3.28% 4.77% 4.64% 3.75% 0.23% 3.38% 11.18%
Dividend Yield ANN 4.49% 3.63% 6.69% 7.03% 6.86% 6.12% 6.74%
Dividend Yield 5YA 4.26% 5.30% 4.71% 5.34% 5.69% 3.89% 3.93%
Market Cap. 28,91B     215.55B 30.11B 22.36B 1.23T
LT Debt to Equity MRQ 120.94% 116.36% 128.02% 82.80% 109.05% 315.53% 4.68%
Total Debt to Equity MRQ 150.79% 134.59% 150.69% 92.40% 124.11% 379.51% 6.73%
EV / EBITDA 1.73   12.89 38.23 7.21 5.6 0.5

* TTM = Trailing Twelve Months 5YA = 5-Year Average MRQ = Most Recent Quarter

 Price & EV Multiples are in favor comparing to industry and peer companies.
 Return on equity & investment are improving by comparing ROE TTM of 8.87% to ROE 5YA of 5.55%
 Dividend yields are lower than peer companies and Debt ratios are in line with industry and peer
companies.

Avg peer
Orange SA Industry AT&T Vodafone Telefonica China Mobile
companies
Gross margin TTM 58.27% 55.86% 62.25% 53.85% 31.50% 73.39% 90.27%
Gross Margin 5YA 58.23% 58.52% 54.05% 53.19% 28.28% 52.17% 82.54%
Operating margin TTM 14.03% 18.82% 11.10% 15.75% 3.87% 9.59% 15.17%
Operating margin 5YA 11.48% 19.07% 11.72% 15.06% 4.43% 11.41% 15.99%
Pretax margin TTM 11.06% 14.50% 8.93% 10.81% -0.54% 6.40% 19.05%
Pretax margin 5YA 7.95% 14.12% 10.42% 12.03% 2.37% 6.93% 20.34%
Net Profit margin TTM 7.12% 11.25% 6.07% 8.70% -3.89% 5.16% 14.32%
Net Profit margin 5YA 5.31% 10.36% 7.48% 8.60% 0.57% 5.29% 15.46%

 All profit margins are in line with industry and peer companies.
 A difference of 5% between pre-tax margin and net profit shows the effect of high taxes in France.

“Corporate-tax rate for France is 31% for companies with an annual turnover below €250 million and 33.33%
for companies with an annual turnover of €250 million and over plus a social contribution of 3.3% is payable if
the corporate tax liability is more than €763,000.” Compared of below 25% in US, 19% in UK.
Financial Highlights * In Millions of EUR (except for per share items)

FY20 outlook
The importance of telecoms in this crisis in ensuring the continued functioning of the economy confirms the
strategic nature of tele-communications.
Taking into account the uncertainty caused by the exceptional crisis triggered by the Covid-19 pandemic, BOD
will propose to the Shareholders’ Meeting of May 19, 2020 a decrease in the 2019 dividend from 0.70 euro to
0.50 euro per share resulting in a dividend of 0.50 euros per share in respect of the 2019 fiscal year. Dividends
is paid semiannual with a payment of € 0.30 on December 4, 2019 was already paid, € 0.20 per share will be
paid in cash on June 4, 2020. With a continuing monitoring of the evolving situation to decide on the promised
€ 0.70 dividend for the period of 2020-2023.

Q1-20
Orange Group revenues were up 1.0% YOY for Q1-20, driven by solid growth in Africa and Middle East and
improvement in the Enterprise, France, and Europe segments.

Revenues in Africa and Middle East grew by 6.2%, and in France by 0.5%, with a 2.2% increase in retail
services. Enterprise revenues grew by 0.8% and Europe by 0.3% while Spain revenues declined by 2.4%.

       
       
Q1-20 Q1-19 Change % YOY Change % Historical Average
Total Revenues 10,394 10,290 1.00% 2.10%
EBITDA 2,602 2,588 0.50% 0.70%

FY19
For the fiscal year ended 31 December 2019, Orange SA revenues increased 2% to € 42.24B and 1.1% in the
fourth quarter accelerating from 0.8% in the previous quarter. This increase was driven by strong growth of
6.2% in Africa & Middle East, 1.4% in Europe, 1% in Enterprise while a decline in France by 0.3% and a
decline in Spain by 1.5%. Group EBITDA grew 0.8% in 2019 and 1.3% in the fourth quarter accelerating from
0.2% in the previous quarter.

Operating profit increased by 22% to € 5.927B supported by strategic growth and cost control while Net
income increased 54% to € 3B and net income applicable to common shareholders increased by 65%.

Income Statement 2019 2018 2017 2016

Total Revenue 42,238 41,381 40,859 40,918
Gross Profit 24,611 23,999 23,626 23,793
GPM % 58.27% 58.00% 57.82% 58.15%
Operating profit 5,927 4,829 4,778 3,324
OPM % 14.03% 11.67% 11.69% 8.12%
Net Income 3,006 1,954 1,843 2,935
NPM % 7.12% 4.72% 4.51% 7.17%
         
DPS - Common Stock Primary Issue 0.5 0.7 0.65 0.6
Diluted Normalized EPS 1.02 0.66 0.74 0.55
 Balance Sheet 2019 2018 2017 2016
Current Assets 24,987 21,891 21,737 19,849
Total Assets 106,303 96,592 95,349 94,668
Current Liabilities 27,695 30,296 29,057 25,904
Total Liabilities 74,575 65,923 64,374 63,980
Total Equity 31,728 30,669 30,975 30,688
Total Liabilities & Shareholders' Equity 106,303 96,592 95,349 94,668
         
Debt ratio 70% 68% 68% 68%
Total shares outstanding 2,650.31 2,652.84 2,659.56 2,660.03
BV / share 11.97 11.56 11.65 11.54

Orange announced that The Group maintain the objective of a ratio net debt to EBITDA around 2x in the
medium term in order to preserve Orange's financial strength and investment capacity.

Debt Ratings - Sept. 2019

Standard & Poor's Moody's Fitch Ratings Japan Credit Rating

Long-term period debt BBB+ Baa1 BBB+ A

Outlook Stable Stable Stable Stable

Cash Flow 2019 2018 2017 2016

Cash from Operating Activities 9,939 9,302 9,977 8,422
Capital Expenditures (8,422) (7,642) (7,527) (8,492)
Cash from Investing Activities (9,370) (8,552) (7,941) (4,879)
Total Cash Dividends Paid (1,857) (1,860) (1,729) (1,596)
Issuance (Retirement) of Debt, Net 1,948 1,284 (456) (33)
Cash from Financing Activities 55 (1,131) (2,738) (1,883)
Net Change in Cash 624 (381) (702) 1,660
         
Free Cash Flow 1,737 1,864 2,647 258
Free cash flow to Equity (431) 376 2,906 (37)
Valuation
Beta 0.52
RM 6.25%
RF 1.50%
Discount rate 3.97%
Return on Equity TTM 8.78%
Return on Equity 5YA 5.55%
Payout Ratio TTM 67.82%

Growth rate 2.95%

Perpetuity growth rate 1.00%

2019 2020 2021 2022 2023

Dividends € 0.50 € 0.55 € 0.60 € 0.65 € 0.70
Terminal Value € 19.59 $23.80
Dividends Value € 2.76
Fair Value € 22.36

Taking into consideration that Dividends will be cut to € 0.50 from € 0.70 for 2019 dividends due to the
pandemic situation and that Orange announced that the situation will be monitored closely and decisions might
be taken in time for the promised € 0.70 dividends from years 2020 to 2023, and the strategic nature of tele-
communications and the stable performance for the company in Q1-20.
I expect that dividends will at least rise again gradually to € 0.70 in 2023 with perpetual growth after of 1%.
My recommendation is to buy ORANGE SA at current price of € 10.78 with fair value of € 22.36

Sensitivity Analysis

PERPETUITY GROWTH RATE

0.50% 0.75% 1.00% 1.25% 1.50%

2.5% 33.94 38.64 44.50 52.96 65.64

DISCOUNT RATE

3.0% 27.09 29.85 33.31 37.75 43.68

3.5% 22.53 24.38 26.60 29.31 32.70

4.0% 19.45 20.60 22.36 23.94 26.12

4.5% 16.85 17.82 18.94 20.23 21.74

5.0% 14.95 15.71 16.55 17.51 18.61

5.5% 13.44 14.04 15.70 15.44 16.27