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A Consideration Of Orange As A Bond Proxy In A Strategic Context

Dec. 01, 2021 7:00 AM ETOrange S.A. (ORAN), FNCTFDTEGF, DTEGY, IXTC, TEF, TEFOF, VOD, VODPF20 Comments
Yves Sukhu profile picture
Yves Sukhu


  • Along with its nearly 10% dividend, some investors have argued Orange serves as an effective bond proxy.
  • I consider this argument in the context of the firm’s Engage 2025 strategy model, recent Q3 FY ’21 performance, FY '21 forecast.
  • A valuation model, using Orange’s strategic growth algorithm as an input, supports the idea that current share prices have "meat on the bone".
  • I conclude that Orange, with shares near their 52-week low, is likely to preserve investor capital as it throws off enough cash to support and grow the dividend.
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Bond Proxy or Best Avoided

French telecommunications giant Orange S.A. (NYSE:ORAN), with more than €42B in sales and nearly 260 million customers around the world in FY ’20, has been batted around as something of a bond proxy; a, perhaps, very attractive bond proxy given

This article was written by

Yves Sukhu profile picture
I have a background in enterprise software. From time to time, I stray from the technology sector to write about companies that I think are worthy long-term investments.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ORAN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

Not a bad call and it seems this bond’s time has come. Bought it a little early but now back to par and ahead with dividends. The strategy was never for growth (though one can hope and the African angle is an interesting one) but values everywhere else were stretched and I needed somewhere stable to put money whilst earning a return. Worth holding in my view whilst values are stretched.
Value trap and dividend subject to 30% french withholding and ADR fees for US holders, I've purchased over last 7 months based on similar articles by Wolff Report with a steady decline far greater than dividend can justify.

In defense of Wolf Report, what is the recommended holding period on his picks? My guess is it's a lot longer than 7 months. I follow a similar investing style and sometimes it takes years for the market to correct for undervaluation, but when it does correct it happens rapidly, and often dramatically (often overshooting).
@CatchingFIRE Plot share price for 1,2,5 years, down down down. It's even lower today than the covid drop in March 2020. SA rates growth a F. ouch
To my knowledge Wolf Report didn't recommend it before April 2021, so anything prior to that is immaterial to judging his recommendation. Also, you don't need much growth with a 9% dividend to get a decent total return (yes, I understand the tax withholding situation). The idea is that you get paid to wait until it reverts to it's mean historical valuation, at which point I will sell.

It seems many telecoms, including high quality ones such as VZ are out of favor now (VZ down almost 20%) I am buying the discounts and enjoying the dividends while I wait until they are back in favor, or at least back to neutral.
Flex68 profile picture
Quite an article!

My first thought upon reading the title was, "Yeah, I heard the same thing about VZ."

My second thought was that if a medical professional looked at ORAN's share price over the past multiple years, one might expect to hear, "This one is gone: shock not advised."

But thanks to author for an in-depth review.

Value stock vs/ value trap?
Hmmmmmm, does the rich divvy really make much difference?

A current 8.7% dividend scarcely makes up for a one year SP drop of 17.87%

Nope, I'll take corporate or T bonds, I think..........................
Yves Sukhu profile picture
Hi @Flex68 - you offer a valid comparison (re: Value stock vs/ value trap?) . ORAN's long-term success is no layup. But, to reiterate a few points from the article, with their cost reduction targets in sight and planned reduction in eCAPEX around the corner, they will obviously be in a better position to hit their EBITDAaL and cash flow goals. And, with the expectation that France/Spain should return to growth in the near term, the core telecom business should (key word is should) see better days ahead. Top all that with continued progress in their growth areas (e.g. Africa, enterprise services, financial services), and hopefully we're looking at a stock that can get "back on track" pretty soon. Thanks for reading and commenting. Best - Yves
Tellurium128 profile picture
Bonds are the worst investment to hold in inflationary times.
Flex68 profile picture
@Tellurium128 ,

Do what?!
Thank you for your analysis. Orange dividend history is a bit confusing but details can be found at Orange.com; 2019 dividend was reduced from .70 Euros to .50 Euros as a pandemic precaution to enhance liquidity; 2020 dividend was restored to .70 Euros and a special .20 Euro dividend from a one time tax case settlement was added for a total of .90 Euros; 2021 dividend returns to the pre-pandemic .70 Euro dividend. Most financial websites use the 2020 .90 Euro dividend enhanced by the one time .20 Euro special payment in calculating the forward dividend yield for Orange. That is misleading as .70 Euro is the "run rate" dividend. Currency exchange rates come into effect as well for those who do not live in a Euro currency country.
Yves Sukhu profile picture
Hi @shughes3 - thanks for taking the time to write up your comment and share the dividend details with other readers/investors. Really appreciate it. And thanks for reading the article. :-) Best - Yves
A little math: a 79 cent dividend on a $10.84 stock is closer to 7% than 10%. Ex-div on 12/9 for 33 cents. Pass
Zarley profile picture
As always a detailed, well written and interesting article. This is why you are one of my 2 favorite SA writers.

As for ORAN, I am intrigued. I definitely see your point about cashflow With ample opportunity in Africa/ME some real growth could arise. As you say this isn't a "lay up", nothing about doing business in Africa is. Also appreciate the challenges ORAN faces. More homework on my side will be done before biting into this orange; but a reasonably secure 10% return while waiting for growth is extremely tempting.
Yves Sukhu profile picture
Hi @Zarley - that is such a kind compliment (re: This is why you are one of my 2 favorite SA writers.) I am really grateful for it. I think your point about doing some more homework is a particularly good idea in this case as their business is not necessarily the easiest to follow/digest (IMHO). To that point, I can't help but wonder if Stéphane Richard's successor will be tasked with streamlining things a bit. We'll see what happens in 2022. As always, thanks for commenting and reading. Kindest regards - Yves
SMRT profile picture
@Zarley " This is why you are one of my 2 favorite SA writers."....can I ask who is the other one?
Zarley profile picture
@RDSantosMi Deep Value Ideas is another. Like Yves, articles are well thought out and readable (not looking for subscriptions and not trying to wow with terminology or "financial" knowledge) Personally, DVI is much more my investing style; but, Yves does a great job, looks at lots of companies I know little about and I really respect his work.
Thanks to the author for an excellent and well detailed analysis on ORAN.

Long ORAN, VOD, and T ( importantly at near current market share pricing).
Using all 3 as Bond proxies, however with all 3 companies being near multi year
lows, I feel all 3 realistically have about 20+% upside over the next 18 months.
I’ve written 20% +/- out of the money covered calls on VOD and T to increase Yield. Strikes are written at my approx target prices over the next 12 months.
Overall, I feel all 3 of these Telco’s offer limited downside in the current hazardous market environment. I believe ORAN goes ex dividend ( semi annual) in about 2 weeks.

Good luck all.
Yves Sukhu profile picture
Hi @obiwan48 - thanks for the kind words (re: Thanks to the author for an excellent and well detailed analysis on ORAN.) In terms of your upside forecast, I tend to lean in that direction too as per the valuation modeling exercise in the article (re: "I feel all 3 realistically have about 20+% upside over the next 18 months.") Let's hope it plays out even better. :-) Thanks for reading and commenting. Best - Yves
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