Orange’s Ambition To Increase Dividend in 2025 Appears Achievable

No-moat Orange’s ORAN fourth-quarter and annual results were aligned with our forecasts, with revenue and EBITDA after leases coming in at EUR 43.5 billion and EUR 13.0 billion respectively, 0.6% and 2.5% organic growth. For 2023, Orange has guided for slight growth in EBITDAaL, a significant decrease in capital expenditures, and an increase in its dividend floor to EUR 0.72 from EUR 0.70. Orange also said it intends to raise its dividend floor to EUR 0.75 by 2025, with this news resulting in the stock being up almost 5% at the time of the writing. We maintain our EUR 13.40 fair value estimate.

We believe Orange’s dividend ambitions are achievable, assuming it refinances most of its debt maturities with almost no capacity to reduce leverage organically (or without divestments); its telecom business remains stable in France, which represents 50% of the group’s EBITDAaL (we also haven’t seen any signs of deterioration in the mobile or broadband business); and finally its Africa and Middle East business continues to grow at mid- to high-single digits.

So far, Orange seems to be faring well after passing inflationary pressures on to African customers, offsetting any currency depreciation when translating numbers into euros. We remind investors that the Africa and Middle East division is Orange’s main growth engine, representing 20% of the group’s EBITDAaL, but is subject to higher uncertainty due to macroeconomic and political risk. Should this division’s performance deteriorate, Orange’s dividend growth ambitions would have less room for error. Orange also plans to cut EUR 600 million in costs, out of a cost base of EUR 11.8 billion, which represents a 5% reduction.