Netflix Partnership And VOO Integration Will Strengthen Future Service Portfolio

Key Takeaways

• Successful VOO integration and cost optimization efforts are enhancing operational efficiency, potentially boosting net margins and future earnings.
  
• Strategic partnerships and network investments are driving customer acquisition, retention, and revenue growth, with service portfolio expansions enhancing ARPU.
  
• Increased competition, reliance on synergies, and rising costs could pressure Orange Belgium's margins, necessitating strategic investment and efficiency improvements.

Catalysts

Engages in the provision of telecommunication services in Belgium and Luxembourg.

• Orange Belgium's successful integration of VOO has already achieved significant synergies, and the company expects to reach its €85 million synergy run rate sooner than initially planned, boosting future EBITDAaL. This creates a strong operational efficiency catalyst, possibly enhancing net margins.
  
• The aggressive expansion of FTTP (Fiber to the Premises) and high-speed network investments, coupled with successful commercial strategies including multi-brand offerings, are anticipated to increase customer acquisition and retention, driving future revenue growth.
  
• The partnership with Netflix and introduction of integrated service offerings could strengthen Orange Belgium's service portfolio, potentially leading to increased service revenue and higher average revenue per user (ARPU).
  
• Continued focus on cost optimization and operational efficiency, such as the RAN sharing program and digitization initiatives, is likely to sustain or improve net margins and operational resilience against competitive pressures, impacting future earnings.
  
• A strategic approach to 5G deployment and satellite internet services is expected to expand Orange Belgium's reach and service capability, which could attract new customer segments and support revenue growth, especially in underserved areas.

Orange Belgium Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Orange Belgium's revenue will decrease by 0.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.1% today to 5.7% in 3 years time.
• Analysts expect earnings to reach €111.5 million (and earnings per share of €0.51) by about March 2028, up from €22.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, down from 45.5x today. This future PE is lower than the current PE for the GB Wireless Telecom industry at 45.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.02%, as per the Simply Wall St company report.

Orange Belgium Future Earnings Per Share Growth

Risks

• The entry of a new mobile player, Digi, into the Belgium market in 2025 increases competition, potentially impacting Orange Belgium's ability to attract and retain mobile customers, which could pressure retail service revenue and EBITDA.
  
• The dependency on synergies from the VOO integration for EBITDA growth may present risks if these synergies are not realized as expected; this dependency could impact net margins and operational efficiencies.
  
• There is a slower fixed broadband market growth, coupled with competitive pressure from Proximus's fiber rollout, which might require accelerated investment in fiber infrastructure, potentially straining capex budgets and net margins.
  
• Regulatory discussions and potential changes in government policies could introduce uncertainty, affecting strategic investments and cost structures, potentially impacting revenue and net margins.
  
• Automatic wage indexation in Belgium presents a risk of increased labor costs, putting pressure on operating margins and possibly affecting overall profitability if not offset by efficiency gains.

Valuation

• The analysts have a consensus price target of €16.388 for Orange Belgium based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.0, and the most bearish reporting a price target of just €10.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €111.5 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of €15.0, the analyst price target of €16.39 is 8.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.