Tuesday 30 April 2013

Analysis of Orange / France Telecom

A French telecom and internet service provider

Company: Orange previously France Telecom

Business: Landline and mobile telephone services, provider of internet and services which follow with that such as television etc..

Active: They claim world wide but largest focus is Europe where especially France is very heavy.

P/E: 26.3

The P/E is especially high with its 26.3 because they had a bad year. Here the question is if that will change though... The price to book is good with its 0.9 which gives according to Graham 23.3 which is pretty close for being an acceptable investment. With a better earnings year it should be a fine investment. However the earnings per sale is bad with 2% out on each sale made. those margins are squeezed! Book to debt seems to be ok. The growth in the last five years has been downhill by -4% per year this comes mainly from very high earnings 5 years ago and since the last 4 years the earnings has been pretty flat before the 2 billion sales decrease in 2012. Lynch and Graham is of course giving a bad P/E ratio and gives a no, no for investment. They have however for a long time been paying a very high dividends. I guess the French government (owns around 27%) has been demanding that. Also this year they pay out almost 10% in dividends but that is over 250% of their earnings meaning this is not sustainable. Before they were evening paying out 1.4€ per share and they have had no money left for investment and sometimes were even forced to take that money from the coffins. I am sure that the only reason why the stock is still valued so high is due to the dividends. But pretty soon they must cut that completely and the stock price should fall much further. Additional things they are reporting with broken years and I for the life of me was not able to understand and follow the quarter reports to dig out the real running P/E so I left it alone and only took the final year.

Conclusion: This company must seriously adjust the dividends that they pay out and when they do the stock price will fall. Then... maybe there will be a new interest to look at them but also as a company I would like to see that they either significantly decrease their costs or push up the earnings. Not easy to decrease costs when half the workforce is in France were you just can not fire people as you can in most other countries... for good and bad... good and bad. I will not invest in this company and would not advice anyone to do so either.

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