Orange Shares Jump as French Business Shows Signs of Improvement

  • Orange shares on track for their best performance in one year
  • French carrier reiterates forecast for rising 2016 earnings

Orange SA shares rose the most in a year as the French phone company reported signs of improvement in its home market in the third quarter despite intense price competition.

Adjusted earnings before interest, taxes, depreciation and amortization rose 1.6 percent to 3.6 billion euros ($3.9 billion), Orange said in a statement Tuesday. That compared with the average analyst estimate of 3.59 billion euros. Sales climbed 7.8 percent in Spain, while revenue in France declined 0.6 percent after a 1.2 percent drop during the first six months.

Orange in April failed in its attempt to buy Bouygues SA’s wireless business for about 10 billion euros, denying France’s phone industry a consolidation that could have alleviated its cut-throat competition. Instead of being able to save on costs such as equipment purchases and customer service, Orange is stuck with three major rivals and discounts in one of Europe’s most competitive markets.

Still, the carrier added 134,000 fixed-broadband customers and 187,000 mobile clients in the quarter in France, without any promotions in the wireless segment during the period, Chief Financial Officer Ramon Fernandez said on a conference call with reporters.

“With an improvement of the trends visible in France and in Spain, and an increase in Ebitda in the third quarter, the quarter marks the inflection point promised by the company,” Eric Beaudet, an analyst at Natixis Securities, said in a note.

The results signal that Orange’s French business may return to growth sooner than expected, analysts at Goldman Sachs Group Inc. said in a note.

Shares of Orange advanced 4.9 percent to 14.78 euros at 1:35 p.m. in Paris. The stock gained as much as 5.4 percent, the biggest intraday increase since Oct. 22, 2015.

Rather than rely on discounts, Chief Executive Officer Stephane Richard is trying to compete on service and network quality while also touting high-speed broadband services. He also is expanding in Africa as price competition weighs on French wireless revenue and European regulations eat into roaming revenue on its home continent.

If at some point French telecom market shifts to three players from four, it will be "probably better for everybody," Fernandez said on a call with analysts.

Revenue rose 0.8 percent to 10.3 billion euros, matching the average estimate. The Paris-based company plans to pay a dividend of 60 euro cents a share for 2016 and reiterated a forecast for higher full-year earnings, although Orange also is suffering from the project started by the European Union in 2007 to cut the region’s roaming premiums.

"The fourth quarter will be better than the third," Fernandez said to journalists, adding the lower European roaming fees will have an impact of about 150 millions euros in 2017. The latest mandatory price cut on surcharges was introduced on April 30. 

Orange is also seeking revenue with a banking unit that is likely to start in France in the first half of 2017 after the company bought 65 percent of Groupama Bank, Fernandez said. Work toward the division’s debut "is progressing well," he said.

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