(News Bulletin 247) – The American bank lowered its recommendation on the telecoms operator to “online weighting” from “overweight” previously. The establishment believes that the intensification of competition in France does not bode well for its main profitability indicator, which could decline next year in France.

Orange is bottom of the CAC 40 this Wednesday. The telecoms group showed a drop of 2.9% around 4:40 p.m. when the Parisian index had a fairly good session (+0.8%).

Orange is penalized by Morgan Stanley which lowered its opinion on the stock to “line weighting” from “overweight” previously, which amounts to going from “buy” to “neutral”. The establishment also adjusted its target to 12.5 euros compared to 15 euros previously.

The American bank explains that Orange’s stock market destiny is above all linked to its activity in France, which represents 57% of its stock market value. And more particularly to the group’s main indicator, that is to say its Ebitdaal (gross operating income after rent), in France.

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Intensifying competition

“We believe that generating significant positive Ebitdaal growth in the group’s domestic operations is key to outperformance and share price performance, and is almost certainly the indicator advanced number one in the group”, summarizes the bank.

However, Orange’s Ebitdaal in France is struggling to progress, with Morgan Stanley expecting growth of only 0.4% in 2024, despite favorable elements, such as lower energy costs and price increases.

Above all, the bank judges that the evolution of this indicator risks returning to the red in 2025, expecting a drop of 1.5% next year and 1.1% in 2026.

If Orange benefits from its high-performance network, its strong brand and a loyal customer base “we believe that new convincing offers from the competition will weigh” on the activity, writes Morgan Stanley.

In October, Bouygues Telecom notably launched its “B.iG” brand which offers fixed + mobile subscriptions for the family, with up to 10 lines per household. This allows savings ranging from 15% to 50% on mobile, calculated Oddo BHF. Free (Iliad) had also launched a family offer a few days earlier.

Stifel then saw in these announcements “the return of pricing strategies focused on market shares, giving priority to volumes rather than margins”.

Dynamics under pressure

Morgan Stanley recalls that historically customers have made their purchasing decisions on subscriptions combining mobile and landline based on the quality of the landline offer, before adding mobile plans.

“However, we believe that the recent launch of such compelling multi-SIM mobile offers (by competitors) could change the decision-making process of the French telecoms consumer where mobile could increasingly become the main decision factor of the customer,” she explains.

“Although we expect a limited loss of subscribers, we believe that a certain erosion of ARPU (average revenue per user, editor’s note) is to be feared” for Orange, judge Morgan Stanley.

As a result, Orange’s revenue dynamics in France should find themselves “under pressure”, the bank anticipates. In addition, Morgan Stanley expects the cost of retaining customers in France to increase next year. “A simple increase of one percentage point in this cost ratio – which we consider possible – would dilute French Ebitdaal by -2.8%,” explains the bank.

If Orange offers an attractive yield in terms of dividends, the establishment considers that the company does not present a stock market catalyst. Especially since a consolidation of the sector’s operations in France, an old sea serpent, seems “unlikely”, judges Morgan Stanley.