Citi says Orange is a solid defensive play ahead of Q2 earnings

Investing.com - The stock of the French telecom operator Orange SA (EPA:ORAN) has so far experienced a positive July, and the upcoming quarterly results on July 24 could help maintain this trend.

This was suggested by Citi analysts in a note published on Wednesday, in which they share their forecasts for Orange’s second quarter of 2024, highlighting an intensification of competition in France while maintaining an overall stable profit outlook.

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According to Citi, the increase in competitive intensity and political changes in France have led to a devaluation of Orange’s stock in recent months. Despite this, Citi does not foresee a significant impact on second-quarter earnings. The increased competition in the low and mid-market segments in France, especially in mobile, could slow revenue growth during the quarter compared to the first quarter, due to difficult comparisons with previous periods.

For the second quarter, Citi anticipates moderate growth in retail service revenues in France at 0.9% versus 1.6% in the previous quarter. Total revenue growth for France is expected to decrease to -0.2% compared to +0.8% in the previous quarter. In Poland, a decline of -1.4% in revenue is expected, mainly due to a larger decline in IT and energy resale revenues, offset by a slight improvement in retail revenues. At the group level, Citi forecasts revenue growth of 1.1%, compared to 2.1% in the first quarter.

Citi also expects group EBITDAaL growth slightly below that of the first quarter, at 2.1%, implying growth of 2.2% in the first half of 2024 and a slight acceleration to 2.4% in the second half. In France, EBITDAaL is expected to remain broadly stable for both halves. Citi forecasts operational cash flow (OCF) of around EUR 1.3 billion for the first half and EUR 3.3B for the full year 2024.

Consequently, Citi maintains its buy recommendation on Orange, with a target price of EUR 12, representing a 20% upside potential from Wednesday’s closing price. The analysts also highlight an attractive dividend yield of 7.2% and a free cash flow yield of over 10%, positioning Orange as a solid defensive option in their view.