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1/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
European Telecoms Vol. I: Better together! - Initiation on Altice
“The telecoms sector hasn’t had its Lehman moment yet. But with declining revenues, rising debt, dated
business models, I worry about that happening.”
Former Digital Agenda Commissioner Neelie Kroes certainly made a point at the
European Internet Foundation Breakfast Debate two years ago. The telecommunications
sector has been hit hard in recent years, mainly by the impact of EC regulations, fierce
competition and flagging economic growth. However, the sector narrative started to
change in 2014, on the back of the EC’s newfound openness to consolidation, the
brightening economic outlook as well as on the general excitement about data growth
and the related future-proof technologies such as 4G and fibre.
Despite a still challenging competitive environment, we expect the telecoms sector to
have reached its trough and recover from 2015 on. While convergence and in-market
consolidation should have more of a stabilising impact on ARPU, we expect a clearly
positive impact on opex and capex, both benefitting from synergies (labour and
maintenance costs, network and IT infrastructure). Due to superior network assets, we
expect operators with cable based fixed-line networks to keep their competitive and
obtain a substantial financial advantage over traditional telecoms, which need to intensify
the expensive fibre deployment in order to become competitive again.
We therefore like the Altice Group, which through its subsidiaries Altice France
(Numericable-SFR) and Altice International operates a multinational cable and
telecommunications business with leading positions in its respective markets. By
following a very distinct pattern – mainly debt-financed acquisitions of underperforming
telecom assets in order to boost their profitability by generating synergies – Altice has
emerged out of relative obscurity. When comparing its subsidiaries, we prefer Altice
International over Altice France given the proven track record of high EBITDA growth,
lower leverage and less potential to experience another near-term leverage-intense
acquisition. Moreover, Altice International’s bonds ALTICE 6 ½ 01/22 and ALTICE 8
12/19 offer considerable spread tightening potential towards their CDS curve, which is
more in line with the ALTICE 5 ¼ 05/23. A comparison with the closest peers draws a
similar picture, with lower rated UPC bonds trading at tighter spreads within the same
time-to-worst bucket. We therefore initiate with an overweight on the ALTICE 6 ½
01/22 and the ALTICE 8 12/19. Please find further recommendations in the report.
Companies covered in this study:
(Screening coverage)
Company Bond ratings/Outlook
Altice S.A. (Altice Group)
B1/neg. (Moody’s)
B+/neg. (S&P)
Altice Financing (Altice International)
B1/neg. (Moody’s)
Bonds only: BB- (S&P)
Altice Finco S.A. (Altice International)
B3/neg. (Moody’s)
Bonds only: B- (S&P)
Numericable-SFR SAS (Altice France)
Ba3/neg.* (Moody’s)
B+/neg. (S&P)
* ratings under review for possible downgrade
Berenberg’s top picks:
Bond/recom. Price / YTW / Z-spread
ALTICE 8 12/19
Overweight
107.9 / 2.4% / 232bps
Next call: 12/[email protected]
ALTICE 6 ½ 01/22
Overweight
108.4 / 4.1% / 405bps
Next call: 12/[email protected]
ATCNA 7 ¼ 05/22
Overweight
104.1 / 6.3% / 604bps
Next call: 05/[email protected]
(Pricing: 24/03/2015 BGN Close)
25 March 2015
Alexandre Daniel Analyst
+49 69 91 30 90-593
Patrick Voßkamp Research Support
+49 69 91 30 90-596
Type BERF <Go> at Bloomberg for
further Berenberg FI Research
EUR denominated bonds of the Altice Group
Source: Bloomberg, Berenberg Research (Pricing: 24/03/15 BGN Close)
ALTICE 8 12/15/19
ALTICE 6 1/2 01/15/22
ALTICE 9 06/15/23
ATCNA 7 1/4 05/15/22
NUMFP 5 3/8 05/15/22
ALTICE 5 1/4 05/15/23
NUMFP 5 5/8 05/15/24
ATCNA 6 1/4 02/15/25
0
100
200
300
400
500
600
700
0 1 2 3 4 5 6 7 8 9 10 11
Z-/
CD
S-s
pre
ad
(b
ps)
time to worst
Altice SA CDS
Finco/Financing CDS
Numericable CDS
F I X E D I N C O M E R E S E A R C H | C O R P O R A T E S
2/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Table of contents
Sector overview – better together! 3
ARPU – tough times behind, turnaround ahead 5
Subscriptions – stagnant quantity asks for better quality 8
Operational expenditure – on track, but still a long way to go 10
Capital expenditure – Europe’s “new deal” 12
Valuation, structural considerations and company profiles 14
Altice S.A. 19
Altice International (Altice Finco S.A. / Altice Financing S.A.) 22
Altice France (Numericable-SFR SAS) 26
Disclaimer 29
Contacts 32
3/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Sector overview – better together!
The European telecoms sector has been hit hard in recent years by the impact of EC regulations, fierce
competition and flagging economic growth. In 2014, the sector narrative started to change on the back of the
EC’s newfound openness to consolidation, the brightening economic outlook, the general excitement about data
growth and the related future-proof technologies such as 4G and fibre. Despite a still challenging competitive
environment, we expect the telecom sector to have reached its trough and recover from 2015 on. While
convergence and in-market consolidation should have more of a stabilising impact on ARPU, we expect a
clearly positive impact on opex and capex, benefitting from synergies (labour and maintenance costs, network
and IT infrastructure).
Overall trend
The European telecommunication sector used to be a role model in the 1990s …
boasting the largest cell phone manufacturers worldwide (e.g. Nokia, Siemens, Alcatel), setting
the global standard for digital cellular networks (GSM) and establishing operators with
stunning 60% profit margins (e.g. France Telecom, Vodafone). Even during the first half of
the following decade, Europe has been anything but a digital laggard, building 3G networks the
quickest and producing the trendiest mobile phones.
… before the European Commission authorities dampened the “gold rush mood” by
curbing lucrative revenue streams (i.a. roaming and termination charges) and imposing strict
pro-competition regulations. Topped with a flagging economy, the old continent’s telecom
sector started to live through years of revenue declines and softening profitability.
Only in 2014 the narrative started to change … again on the back of the European
Commission (EC) or rather its newfound openness to consolidation in order to spark network
investments and growth, even at the risk of higher prices to consumers. What previously
appeared the biggest obstacle for telecom companies no longer seems as formidable.
Regulators started to loosen their grip end of 2012 by clearing the first 4-to-3 merger in
Austria. Despite immediate price increases, authorities probably came to a positive conclusion
regarding their Austrian field study as the EC approval of two pivotal mergers in 2014
demonstrated: Following its Austrian deal, Hutchison strengthened its EC-M&A track record
by taking over Telefonica’s Irish business. At the same time, Telefonica Deutschland got
approval for the – so far – biggest mobile deal in recent years: the acquisition of Dutch KPN’s
German subsidiary E-Plus.
… delighting telecom executives, their shareholders and modestly brightening rating
agencies’ outlooks. Listed telecoms recently reached three-year valuation highs, Moody’s
forecasts a slowdown of revenue declines while EBITDA margins remain stable and also
Standard & Poor’s expects stabilising margins as revenue declines ease and cost streamlining is
anticipated in 2015.
Berenberg Equity Research (BER) has identified three key drivers to the current
bullish consensus: (i) The EC talk is “friendly”. New EC president Jean-Claude Juncker has
highlighted that in the mission to create a single European market “we will need to have the
courage to break down national silos in telecoms regulation, management of radio waves and
competition law”. (ii) The sector M&A party is in full swing. Following in-market mobile
consolidation in Austria, Germany and Ireland, we have more recent deals in Norway,
Denmark, the UK and the potential for further deals in France, Italy, and Spain. (iii) Finally,
the market is also getting excited by data growth (again!). 4G is being credited for improving
recent fortunes of mobile operators like Tele2 and Vodafone [the latter noting a 2ppt
improvement in European service revenue growth ex-MTR (mobile termination rates) in its
last quarterly update].
Testing the bull thesis: BER thoroughly tested the telecom bull thesis in its sector report
Misunderstood mobile (6 January 2015), providing results being as surprising as they are
comprehensive. We included the BER findings in our industry overview, which analyses the
different factors affecting the telecommunications sector as well as how they deteriorated in
The European telecom sector
used to be ahead of time
EC regulations put telecom
operators under pressure
Light at the end of the tunnel:
the EC has changed its tune.
The newfound openness to
consolidation is seen as path to
salvation
Rating agencies modestly
optimistic, but still cautious;
markets mainly bullish
Besides the EC loosening its
grip Berenberg’s Equity
Research sees also the new 4G
based data excitement as a
driver for the bullish consensus
Some of the bull thesis points
impact the main industry driver
4/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
the past and how they are expected to recover in the future. Besides force majeure such as EC
regulations, all factors impacting operating free cash flow (OpFCF, most important sector
KPI) can be grouped into four categories:
(i) ARPU: Telecoms suffered from regulations, product substitutions and flagging economic growth for almost the entire last decade, resulting in tiered ARPU declines. But the sector narrative has changed: we expect 2015 to become the year ARPU will have reached its trough on the back of a new tune in regulations (the floodgates have opened on in-market consolidation – three player markets become the new industry standard, reducing competition, thus supporting ARPU development), the positive impact of convergence offers (providing value greater than the sum of the parts should prevent bundle discounts), the brightening economic environment (as telecoms became cyclical a brightening macro outlook should support ARPU) as well as technological progress (4G, fibre and DOCIS 3.0 positively impact the pricing environment).
(ii) Subscriptions: Across European countries, the penetration of basic telecommunication
access steadily increased within the last decade. In recent years, it started to flatten out at
an average SIM-card penetration rate of above 120%. This maturity level forces telecoms
to transform their business models – also in line with the technological progress – in
order to sustain or even expand their subscriber base while breaking the back of
customer churn the same time. Telecoms face this challenge with convergence bundles
offering exclusive content and functionality.
(iii) Operating expenditure: Disparagingly referred to as mass employers or retirement
homes for ageing workers, incumbents currently experience their most severe
transformation since privatisation end of the last century. Given the lack of revenue
growth and the need for economies of scale in the industry, cost efficiency is on top of
the agenda for most operators. The ongoing in-market consolidation wave opens the fast
lane to improvements with regard to the main opex drivers: labour and maintenance
costs, internal processes, network and IT infrastructure.
(iv) Capital expenditure: As subscribers’ thirst for data and speedier broadband is seemingly
insatiable, networks have to be upgraded and reconfigured to skyrocketing data volumes,
while meeting the need for traditional texts and calls. The EC got telecoms a “new deal”
by exchanging softer regulations for investment commitments. Incumbents started
catching up on the long-delayed 4G rollout and fixed-line upgrades, pushing capex to
record levels in 2014. In order to meet both Digital Agenda objectives and consumer
expectations, operators continue to pursue numerous capital intense projects in the
upcoming years.
Factors impacting operating free cash flow (OpFCF)
Source: Berenberg Research
• Macro: telecoms became cyclical thus a
brightening economy favourable
• Convergence: New ARPU stabilising trend
• Regulation: the EC positively changed its tune
• Data/speed growth: technic sells!
Average Revenue per User (ARPU)I
Revenues
• Convergence: providing value greater than the
sum of the parts is key to reduce churn
• Content & functionality: providing exclusive
services and content attracts new customers
SubscriptionsII
• Productivity improvements: Labour costs
• Internal transformation programs
• Integration: Sharing & integrating
• Consolidation: Main source for opex savings
Operating Expenditure (Opex)III
• Mobile: 4G rollout in full swing, keeping capex
high; further spectrum sales expected in 2016
• Fixed-line: Cable in the lead, incumbents
investing in interim solutions until fibre rollout is
accomplished
Capital Expenditure (Capex)IV
Expenses
Operating Free Cash Flow
5/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
ARPU – tough times behind, turnaround ahead
Telecoms suffered from regulations, product substitutions and flagging economic growth for almost the entire last
decade, resulting in tiered ARPU declines. But the sector narrative has changed: we expect 2015 to become the
year ARPU has reached its trough on the back of
(i) a new tune in regulations: the floodgates have opened on in-market consolidation. Three player markets
become the new industry standard, reducing competition, thus supporting ARPU development.
(ii) convergence offers: providing value greater than the sum of the parts should prevent bundle discounts
(iii) macro improvements: as telecoms became cyclical a brightening macro outlook should support ARPU
(iv) data/speed growth: 4G, fibre and DOCIS 3.0 positively impact the pricing environment
Overall trend
Almost the entire last decade has seen the European telecom industry ride out by far its
toughest times, with revenues that have undergone a fairly precipitous decline and margins
losing more and more ground. The persistent downward pressure mainly arose from:
(i) challenging regulations: By far the greatest obstacle telecoms had to overcome. Almost the entire last two decades telecom regulators on the national and the European level have created rules intended to keep communication prices low by stimulating increased competition or by directly imposing price ceilings. Thus, authorities gradually curbed lucrative revenue streams (i.a. roaming or termination charges) and imposed wholesale access (to wireless and wireline networks) at specified rates, the breeding ground for MVNO’s (mobile virtual network operator).
(ii) flagging economic growth: The telecom sector is billed as being defensive, however, Berenberg Equity Research (BER) questioned this former text book wisdom and established good versus bad mobile markets on the basis of mobile service revenue growth ex-MTRs (mobile termination rate) over the last six years. In testing numerous factors, and running over 30 separate regressions, only one factor truly stood out – GDP growth. In a second step, Equity Research regressed the three largest GDP constituents (government spending, investment and consumption) against mobile service revenue growth and identified consumption growth as the real underlying driver. In particular for the last two years an R² of 67% indicates a meaningful result. The sector has gone from no cyclicality to being cyclical, in particular since the financial crisis.
(iii) substitution: Telecoms by nature are closely related to technologies and their increasingly shortening life-cycles, thus are constantly faced with substitution threats. However, whereas substitution processes used to take place within the industry, telecoms recently have been increasingly challenged by other sectors such as the software industry, providing services “over the top” of the operators’ networks (OTT). Taking Voice as an example, on top of the progressing fixed-mobile substitution. Voice is now translated into Data (Voice over IP), opening the door for OTT providers such as Skype or Viper. All mobile services are transformable into simple data. Thus, given increased bandwidth for fixed and mobile users, they can be offered by OTT providers. Lucrative revenue streams as traditional Voice and Text services are step by step cannibalized by low-margin data and benefitting OTT’s.
The changing face of communication
Source: Berenberg Research
1995 2005 2010 2015 2020
The future is all about data - on the wireline and
wireless. Voice, msgs and content are all measured on
data. Network speed/quality comes
as the last possible differentiation
Same revenue streams as 5 years before, different
significance. 3G made mobile data consumable,
driving strong
growth
Whereas communication used to be almost entirely
voice driven in the early 90s, data started to play an
increasingly important role for
revenues from the mid 90s on
Telecoms are fighting declining revenues in fix and
mobile with content offers and network investments
Mobile services increasingly offset precipitous revenue
declines in fixed line services. Mobile data about to
become the
next big thing♫
Voice-MobileVoice-Fix Data-Fix Voice-MobileVoice-Fix Data-Fix Data-Mobile
SMS
Text Msgs
Voice-MobileVoice-Fix Data-Fix Data-Mobile
SMS
Text Msgs Voice-MobileVoice-Fix Data-Fix Data-Mobile
SMS
Text Msgs Add Ons-Services
Data-Fix Data-Mobile
ARPU knew but one direction
in recent years: downwards
Regulatory hurdles by far
curbed revenue streams the most
Telecoms became cyclical, thus
suffered from flagging economic
growth
OTT services offer free or
inexpensive alternatives to
traditional telecom services such
as voice and text
6/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
We saw a first light at the end of tunnel in 2014, with softening declines on the top-line and
margins somewhat stabilising. The industry is currently turning former hurdles into stepping
stones and benefits from a brightening market environment in general. We thus expect 2015 to
become the year ARPU will have seen its trough and going forward noticeably stabilise on the
back of:
(i) favourable regulations: As much as most telecom executives saw regulation as root of all evil in the past, the newfound favourable stance of the EC towards consolidation now appears as a path to salvation for them. Authorities kept discussing the chicken or the egg causality dilemma for years, with a digital single market across the 28 EU member states representing the chicken and a fully consolidated market with only a few pan-European operator giants representing the egg. Applying a more benign regulatory regime seemed to be within a more easy reach compared to a consolidation of the heavily national regulation microcosms, thus the EC obviously opted for the egg as the clearance of several 4-to-3 merger suggests. Remedies imposed by the EC have been proven toothless so far. In Austria and Germany, prices for subscribers have uniformly risen following M&A deals. Going forward, consolidation is likely to remain a near to medium term ARPU support. The M&A train is picking up pace, with recent deals in the UK, France, Denmark and Norway leading the way. The window of opportunity for more deals is wide open, pushed trough the lenient credit environment, structural challenges of mobile operators, the favourable stance of EC regulators towards consolidation, some operators opting to sell non-core assets to regain financial flexibility and the ongoing fixed-mobile integration (in order to leverage fixed-line networks’s ability to carry fast rising data traffic generated by mobile users while offering customers convergence bundles that are highly successful in many European markets).
Four player markets likely to see in-market consolidation Prices for bundles already reached the trough in Europe
Source: Berenberg Research Source: European Commission, Berenberg Research
(ii) convergence offers: Besides fuelling the consolidation pipeline, the convergence trend in theory also offers the opportunity to improve market share, reduce churn rates and at least stabilise revenues. Convergence offers – packages bundling multiple services such as fixed and mobile telephony, broadband and television services – help to steer away customers from other providers, in particular if convergence provides value that is greater than the sum of its parts. Following the idea that discount isn’t the differentiator but rather unique, compelling services that can’t be easily replicated, convergence offers are expected to have a stabilising impact on ARPU. As an example, by applying the approach of “if you can’t beat them, join them”, thus partnering up and striking exclusive deals with OTT providers, telecoms can differentiate their service bundles.
(iii) supportive economic environment: BER questioned the defensive nature of the sector and found that telecoms became cyclical since the financial crisis. The sensitivity to the economy results from the exposure to cyclical factors such as travel (especially business travel is clearly cyclical and roaming for outside and coming into the EU is highly profitable) and B2B (businesses become savvier in optimising spend and less sensitive to who they buy services from). A regression based analysis of the relationship between real GDP growth and mobile service revenue growth ex-MTRs had an R² range between 30-60% as a result, depending on the time horizon chosen. Within the last two years, 1ppt of GDP growth implied 2ppt of service revenue growth. Although developments diverge
Consolidation pending
regulatory approvals
Not covered
3 MNOs
4 MNOs
40
50
60
70
80
90
100
2009 2011 2012 2013 2014
Mo
nth
ly p
rice o
f in
tern
et+
fix
ed
te
lep
ho
ny+
TV
by s
peed
(€)
8 - 12 Mbps 12 - 30 Mbps 30 - 100 Mbps
2015 is about to become the
year ARPU has seen its trough
The EC’s newfound openness to
consolidation has opened the
floodgates on in-market M&A
deals, reducing competition and
thus at least stabilising ARPU
Convergence offers providing
value that is greater than the
sum of its parts should
contribute to ARPU
stabilisation
As telecoms became cyclical, a
brightening economic outlook
should further support the
ARPU development
7/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
across markets, our economists forecasts notable macro improvements for the Eurozone in general, which should exert upward pressure on the ARPU development in 2015 and 2016.
Economic outlook brightens over almost entire Europe 2-year regression implies mobile has become cyclical
2012 2013 2014 2015e 2016e
Eurozone GDP -0.4 -0.4 0.9 1.3 1.9
Private consumption -1.4 -0.6 0.9 1.4 1.2
UK GDP 0.3 1.7 2.6 3.1 3.0
Private consumption 1.5 1.7 2.0 3.0 3.0
Germany GDP 0.9 0.2 1.6 1.8 2.3
Private consumption 0.7 0.9 1.3 1.9 1.7
France GDP 0.0 0.4 0.4 0.8 1.4
Private consumption -0.3 0.3 0.6 1.0 1.2
Italy GDP -2.6 -1.9 -0.4 0.3 1.1
Private consumption -4.1 -2.7 0.3 0.5 0.7
Source: Berenberg Economists, Berenberg Research Source: Berenberg Equity Research
(iv) data/speed growth: wireless voice and text revenues remain under heavy pressure as subscribers switch to data-and-voice bundles or use cheaper, unmetered, IP related voice and texting alternatives. This trend to data-centric business models and tiered pricing (by data buckets and/or speed) should translate into some further rises in data revenues, given increasing 4G coverage as well as widespread usage of smartphones and content-rich applications. BER found that on average, a 4G user chose larger data plans than a 3G users, and on average consumed 57% of the bundle vs 46% for the 3G user. With 4G penetration still relatively low in Europe, it should be a good near to medium term support for upselling data packages. We are confident that 4G is driving a genuine increase in data usage, however, not translating into respective ARPU improvements. Regressions conducted by BER for the last two years showed a positive, albeit weak, relationship between 4G and service revenue growth ex-MTR – with each incremental 10ppt take up of 4G implying only a 1ppt benefit to revenue growth. The sector promotes higher data bundles at almost no premium as a retention tool to stabilise prices and fight competitors. We thus expect at least a stabilising effect on ARPU, similar to the upward gearing trend on the fixed-line/cable side. The rollout of fibre and DOCSIS3.0 technology enables users to a broadband speed experience for which 60% would pay a premium for (Accenture survey 04/14).
In over 30 regressions BER carried out, by far the most meaningful driver of mobile service
revenue growth was GDP growth. Based on a brightening economic forecast of our
economists, we expect at least stabilising ARPU in 2015. Despite showing a weaker
relationship to revenue growth, we also expect data growth, consolidation and convergence
offers to contribute to this trend in mobile ARPU as well as support fixed-line/cable ARPU.
ARPU shifts in France as an example Convergence about to reach 50% penetration in Europe
Source: ARCEP, Berenberg Research Source: European Commission, Berenberg Research
UK
Germany
Italy
Spain
Netherlands
Sweden
Denmark
Switzerland
France
USA
Canada
Belgium
Norway
Japan
Portugal
AustriaFinland
y = 2.0799x - 0.0236R² = 0.5383
-12%
-8%
-4%
0%
4%
8%
-3% -2% -1% 0% 1% 2% 3%
2 y
r se
rvic
e r
even
ue g
row
th
CA
GR
ex
-MT
R
2 yr GDP growth CAGR
22,8 21,3 20,117,1
14,311,4 9,9
2,83,1
3,2
3,3
3,0
2,82,6
1,8 2,2 2,83,2
3,3
3,83,8
27,3 26,6 26,023,6
20,618,0
16,3
0
5
10
15
20
25
30
35
2008 2009 2010 2011 2012 2013 LTMSept.2014
Ex
-MT
R A
RP
U (
€)
Voice SMS / MMSData ARPU Europe
16%
19%
25%
31%
7%7%
9%11%
0%
5%
10%
15%
20%
25%
30%
35%
2010 2011 2012 2013
Pen
etr
ati
on
rate
2-play 3/4/5-play
As revenue per data/speed unit
is in a precipitous decline,
data/speed growth is more of a
ARPU stabilisator than a
growth driver
In terms of ARPU, 2015 is
about to become a turnaround
year
8/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Subscriptions – stagnant quantity asks for better quality
Across European countries, the penetration of basic telecommunication access steadily increased within the last
decade. In recent years, it started to flatten out at an average SIM-card penetration rate of above 120%. This
maturity level forces telecoms to transform their business models – also in line with the technological progress –
in order to sustain or even expand their subscriber base while breaking the back of customer churn the same
time. Telecoms face this challenge with
(i) convergence offers: providing value greater than the sum of the parts steers customers away from other
operators. Quad-play transforms pre-paid subscriptions into post-paid, thus reduces churn rates
(ii) exclusive content & functionality: partnering up with OTTs provides further differentiation
Overall trend
The changing face of communication does not only affect ARPU composition but also
subscription patterns. The proliferation of mobile phones as an example, led to declining fixed-
line voice subscriptions which in effect have been offset by rising mobile voice-and-text plans.
Yet again, customers switch from voice-and-text plans to data-and-voice bundles. In particular
in Europe, where a SIM-card penetration of above 120% indicates a certain market maturity
and subscriber growth rates experience a slowdown, shifting subscribers within the respective
segment (mobile or fixed) in line with the technology cycle and without customer departures
and defections (churn) becomes increasingly important for most operators. A larger subscriber
base is not only important for revenue generation: Scale helps to better invest in new
technology, spreading fixed costs across a broader customer base, allowing for faster
innovation and deployment of new services as well as potential time-to-market advantages. We
analysed how telecoms plan to shift existing customers to state-of-the-art technologies and the
respective contracts while breaking the back of customer churn the same time.
(i) Convergence offers increasingly become the new sector panacea as packaging multiple
services onto a single bundle wisely does not only positively impact ARPU but also steers
away subscribers from other providers. Formerly limited to joint mobile and fixed voice
offerings, convergence used to be somewhat of a damp squib. In line with the
technological progress convergence possibilities significantly improved and became way
more attractive to subscribers. However, packages offering simple discounts as the sole
differentiator are easy to replicate by shaving still more off the costs. If being more than
just built around very simply discounted bundles that prompt customer to buy more and
save, convergence offers can create tighter bonds that reduce churn rates. Operator’s
assets can be combined in ways that offer unique, compelling services consumers
perceive as valuable but that telecoms can provide at limited or even no cost, hence
without eating into existing revenues (e.g. shared allowances for minutes and data, ability
to configure multiple devices with a single online interface). In particular, quad-play
intensifies the churn reducing impact of convergence as reflected in the quarterly figures
of French incumbent Orange shown on the next page.
2005: Service- and infrastructure-bound devices vs 2015: Device-independent services and infrastructure-indep devices
Source: BCG, Berenberg Research
Device Service Infrastructure
Fixed phone PSTN
Mobile phone GSM
Broadband DSL
TV DVB
Bundled mobile and fixed voice service was the key offering,
but had limited consumer acceptance
Device Service Infrastructure
Fixed phone PSTN, DSL
Mobile phone LTE, Wi-Fi
Broadband DSL
TV DVB, DSL
New technological landscape enables cross-device services, tariffs and
infrastructure accompanied by growing customer demand
In a mature market sustaining
or even expanding the subscriber
base is key to success
Implemented wisely, convergence
offers can help telecoms to reduce
churn and attract new customers
9/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
The more services and devices in a bundle, the harder it is to switch to another as the
economies of scale make it simply too cumbersome. Orange doubled the share of quad-
play subscriptions out of its total broadband base in only two years. At the same time,
churn for mobile post-paid and for total mobile subscriptions declined by 4ppt,
respectively. The latter also driven by the fact that a bundle addition of mobile potentially
transforms former pre-paid customers into post-paid subscribers. Cable operators draw a
similar picture, pushing via MVNO agreements into mobile to provide quad-play in an
attempt to keep or acquire new subscribers.
Quad-play is enjoying increasing popularity in Spain Quad-play has a churn-reducing impact for Orange
Source: CNMC, Eurostat, Berenberg Research Source: Orange S.A., Berenberg Research
(ii) Content/functionality: Access to exclusive content and functionality is important for
retaining customers. Streaming videos on demand (VoD) on any device at any place is
now commonplace. In particular cable companies have successfully applied their
bandwidth advantage to introduce enhanced digital TV platforms featuring set-top boxes
that offer not only the popular time-shift functionality, but that also have the capacity to
integrate multiple entertainment services, including OTT platforms. By applying the
approach “if you can’t beat them, join them”, i.e. partnering up with the scourge of
telecoms and striking exclusive deals with OTT providers, telecoms can further
differentiate. However, we expect that these initiatives will remain mainly defensive in the
near-term, aimed at reducing the momentum of subscriber losses in the operators’ video
activities.
High upside potential for smartphone penetration (2013) Convergence trend is driving post-paid contracts up
Source: European Commission, Berenberg Research Source: European Commission, Berenberg Research
Convergence is key to retaining subscribers. Operators offering bundles which provide value
that is greater than the sum of the parts already reduced churn and increased their subscriber
base. At this stage, the impact of OTTs on telecom subscribers is limited, however, poses a
threat in particular with regard to video subscriptions in the future.
31% 27%24%
21% 20% 18% 17%
7%5%
5%5% 4% 3% 3%
10%14% 19% 23% 25%
26% 27%
3% 3% 5% 7% 9%49% 49% 51% 52%
55% 56% 56%
0%
9%
18%
27%
36%
45%
54%
63%
0%
10%
20%
30%
40%
50%
60%
70%
Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 ' 14 Q2 '14 Q3 '14
Quad-play Fixed voice, broadband and pay TVFixed voice, broadband and mobile Double-playTotal bundled take-up (rhs)
28% 27% 28% 28%27%
26% 24%
19% 19% 18% 17% 16% 16% 15%
26%28%
31%
34%36% 37%
43%
10%
15%
20%
25%
30%
35%
40%
45%
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Churn - mobile total Churn - mobile post-paid Quad-play
0%
40%
80%
120%
160%
Pen
etr
ati
on
rate
SIM card Mobile data Smartphone
50%48%
46%44%
50%52%
54%56%
40%
45%
50%
55%
60%
2010 2011 2012 2013
Co
ntr
act
typ
e s
hare
Prepaid Postpaid
Partnering up with OTTs to
strike exclusive deals help
telecoms to further differentiate
their offers
Convergence is key to retaining
subscribers, however is
challenged by OTTs in the
future
10/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Operational expenditure – on track, but still a long way to go
Formerly state-owned operators still have a long way to go when it comes to productivity and cost efficiency.
Disparagingly referred to as mass employers or retirement homes for ageing workers, incumbents currently
experience their most severe transformation since privatisation end of the last century. Given the lack of revenue
growth, and the need for economies of scale in the industry, cost efficiency is on top of the agenda for most
operators. The ongoing in-market consolidation wave opens the fast lane to improvements with regard to the main
opex drivers: labour and maintenance costs, internal processes, network and IT infrastructure. While cross
boarder M&A lack material synergies we expect in-market consolidation to lead to scale effects such as for
marketing and customer service, but also to leverage network and product development costs across a wider base.
Overall trend
Following the deregulation and liberalisation of the European telecommunications market
from the late 1980s onwards, incumbents had an overwhelming workload to deal with:
transparency, responsiveness and in particular cost efficiency to just name a few construction
sides. During the transformation process a new sector of corporatized state-owned companies
evolved and today most of these are at least partly or even fully privatised. However,
privatisation is not a guarantor of cost efficiency and higher productivity. Incumbents managed
to abandon traditional centralised bureaucratic organisations for more flexible and business-
like structures, already leading to cost savings. Nevertheless, formerly state-owned telecoms
still face cost and regulatory rigidities forcing them to juggle many roles as the Financial Times
states: public utility, fiscal piggy-bank, national champion, mass employer and a retirement
home for ageing workers. Given the lack of revenue growth, and the need for economies of
scale in the industry, cost efficiency will likely stay high on the agenda for most operators. We
believe that opex-improving opportunities remain substantial and should translate into at least
stabilising profit margins. There is a wide range of cost-reducing measures operators currently
apply. The most common and efficient approaches are:
(i) Productivity improvements: Already often run in the past, operators still have potential
to raise productivity through improved processes, incremental steps and personnel
efficiencies. Labour costs account for approx. 60% of opex (incl. outsourced services)
thus offer the highest savings potential. Even if the naturally increasing number of
retirements is a bit of a relief, a radical workforce reduction which involves a
restructuring of operating models is needed. An increasing number of operators
implement this strategy by moving away from physical to online retail channels,
implementing self-service, using online billing, and outsourcing field operations to
equipment vendors.
(ii) Internal transformation programs: These more radical measures include the redesign
of internal processes, together with IT simplification and automation. As an example, the
rollout of all-IP networks, fibre and 4G currently helps operators to reduce maintenance
needs and costs. Overall, breaking away from legacy systems unveils large streamlining
potential to telecoms.
(iii) Integration: Network infrastructure is a scale business, thus sharing and integrating to
scale up is a natural evolution for the sector to reduce its overall costs and to improve
efficiency. A similar picture comes for product developments, another area for
economies of scale, particularly for more advanced services. Amounts spent are
increasingly leveraged across markets and operators.
(iv) Consolidation: During the past few quarters, there have been unprecedented activities
of in-market consolidations in the telecoms and cable sector across Europe. Besides the
low interest rate environment and the appetite of pure-mobile players to secure fixed-
broadband assets in order to bundle convergent offers, the simple fact that consolidation
within a market is the main source for substantial opex reductions keeps the M&A
traction gaining momentum. AT Kearney estimates that a reduction of one player in a
market produces yearly opex savings of up to 8% of total operating costs. In-market is
not only the ultimate step to achieve scale effects such as for marketing and customer
Given the lack of revenue
growth, and the need for
economies of scale in the
industry, cost efficiency stays
high on the agenda for most
operators
Labour costs account for
approx. 60% of total opex,
thus offer the highest saving
potential
New technologies reduce
duplications as well as
maintenance needs and costs
Scaling up by sharing network
and development costs reduces
overall costs
Consolidation is the main
source for substantial opex
reductions
11/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
service, but also to leverage network and product development costs across a wider base.
The M&A train is set to accelerate, however, on in-market rather than cross-boarder
tracks as shown on the roadmap below.
“Market-share” M&A offers substantial savings potential In-market consolidation in Italy and France expected
Source: MergerMarket, Berenberg Research Source: MergerMarket, Berenberg Research
Europe’s single-market dream remains more a digital vision as the lack of material
synergies will further hamper cross-border consolidation. Scale benefits are limited when
operating across countries, due to language barriers and a highly fragmented regulatory
environment. Some opex (and capex) savings can be achieved in terms of procurement,
but these will not be much, particularly if consolidation involves some of the largest
players, already boasting some of the best terms with suppliers. As shown below,
geographically diversified operators do not necessarily have stronger margins than
without geographical diversification in this business.
Geographical diversification no guarantor for higher profitability Telecom Austria opex post in-market consolidation
Source: Company data, Berenberg Research Source: Company data, Berenberg Research
Ann.
date
Status Target Acquirer Deal value
(in EURm)
Rationale
Feb ‘15 16,725 Convergence
Jan ’15 14,300 Market share
Sep ’14 3,675 Convergence
Jun ’14 17,000 Market share
Jun ’14 7,200 Market share
Feb ’14 8,550 Market share
Jul ’13 8,634 Convergence
Feb ‘13 18,485Strategic
investment
Completed In progress
Probability Acquirer Potential M&A target(s) Rationale
High Italy (Wind) Market share
High
Italy (Fastweb)
UK (TalkTalk)
Germany (Tele Columbus)
Liberty Global
Market share /
Convergence
High France (Bouygues) Market share
Medium France (Iliad, Free) Market share
Medium Belgium (Mobistar, Base) Market entry
Low Netherlands (Tele2) Market entry
Low Belgium( Mobistar) Market share
Low Orange Market share
Vodafone
Telecom Italia
Belgacom
Portugal TelecomTDC
Telekom AustriaOrange
ElisaTelenor
Tele2
KPN
HutchisonTeliaSonera
Deutsche TelekomVimpelcom
TelefonicaIliad
SFR
20%
25%
30%
35%
40%
45%
50%
0% 10% 20% 30% 40% 50%
EB
ITD
A m
arg
inL
TM
Q3 2
014
(%
)
Weighted market share Q3 2014 (%)
# EU countries player is active in
1-3 4-6 >6
0%
20%
40%
60%
80%
100%
0
750
1,500
2,250
3,000
3,750
2011 2012 2013 2014
Revenue (€m) OPEX (€m)EBITDA margin (rhs) Opex/revenue (rhs)
Cross-border consolidations lack
material synergies. Opex
reducing in-market M&A is
in full swing
12/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Capital expenditure – Europe’s “new deal”
As subscribers’ thirst for data and speedier broadband is seemingly insatiable, networks have to be upgraded
and reconfigured to skyrocketing data volumes, while meeting the need for traditional texts and calls. The EC
got telecoms a “new deal” by exchanging softer regulations for investment commitments. Incumbents started
catching up on the long-delayed 4G rollout and fixed-line upgrades, pushing capex to record levels in 2014. In
order to meet both Digital Agenda objectives and consumer expectations, operators continue to pursue numerous
capital intense projects in the upcoming years:
(i) Mobile: The 4G rollout is in full swing, keeping capex high; further spectrum sales expected in 2016
(ii) Fixed-line: Cable in the lead; incumbents investing in interim solutions until fibre rollout accomplished
Overall trend
With subscribers’ thirst for data seemingly insatiable, these are heady times for network
operators. Spurred by increasing smartphone and tablet penetration, next-generation networks,
and bandwidth intensive applications like video streaming and internet browsing, mobile data
alone already grew by 81% in 2013 according to Cisco’s Visual Networking Index. And no
slowdown is in sight: by 2018, traffic is expected to be almost eleven times greater than in
2013. As of today, already 91% of the world’s total traffic on mobile networks is data, and the
number is expected to increase further. Networks therefore have to be upgraded and
reconfigured to data, while still meeting the need for traditional texts and calls. However, while
most developed countries increased their infrastructure investments, the softening profitability
European telecoms saw in recent years led to a poor investment climate. Paired with an
outdated and intrusive regulation that distorts market-based competition and discourages
capital investments, telecoms stepped back from larger capex-efforts for urgently needed
technologies …
… until 2014! Last year marked a turning point for European operators: M&A, softer
regulation and the convergence trend brightened their outlook and encouraged in particular
incumbents to start a new investment cycle. The EC got telecoms a “new deal”, by loosening
its grip in exchange of an investment commitment in faster broadband networks. With double-
digit growth in absolute terms, 2014 became a record year for capex, also reflecting the
ongoing technological development (migration to 4G in mobile and to fibre in fixed-line) and
intense competitive pressures (incumbents responding to cable operators). In order to meet
both Digital Agenda objectives and consumer expectations, operators continue to pursue
numerous capital intense projects in the upcoming years:
(i) Mobile: Operators currently are in the middle of the long-delayed catch-up in wireless
investments. In particular mobile leaders are heavily investing in the rollout of 4G
networks, which is expected to be largely completed by end of 2016. As of today,
network quality in Europe widely varies, with best networks being twice as fast as the
worst ones, however, so far without resulting in remarkably better pricing power.
Networks have to be upgraded
and reconfigured to subscribers’
insatiable data thirst, while still
meeting the need for traditional
texts and calls
2014 became a record year for capex in Europe Spectrum due decline in mobile, fibre driven increase in fix*
Source: Company data, Berenberg Research Source: ETNO, Berenberg Research; *tangible capex of ETNO members
The EC got telecoms a “new
deal” by exchanging looser
regulations for investment
commitments
The long-delayed rollout of 4G
drove capex up in 2013/14
and is expected to continue so in
2015/16
5,000
6,500
8,000
9,500
11,000
12,500
14,000
11%
12%
13%
14%
15%
16%
17%
2010 2011 2012 2013 2014
Cap
ex
-sp
ectr
um
sale
s (€
m)
Cap
ex
-sp
ec.
sale
s in
% o
f sa
les
Telefonica Deutsche Telekom Vodafone
16.1 16.6 16.6 16.317.9
10.9 11.5 11.3 11.4 10.827.0
28.1 27.9 27.7 28.7
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014e
(€b
n)
Mobile Fixed
13/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Incumbents therefore increase pressure on financially less powerful challengers by
continuing capital spending apace. We therefore expect 4G-capex for large telecoms to
remain at a level similar to the previous year, even though 2015 should not include major
costs from 4G spectrum acquisitions. For 2016, we see continued high capex, especially if
governments start selling spectrum in the 700 Mhz band to support future demand on
4G networks. For the years thereafter, Vodafone just fuelled the vision pipeline at the
CeBIT computer fair in Germany by presenting an experimental version of 5G, a mobile
network standard a thousand times faster than today’s 4G standard.
(ii) Fixed-line: Cable operators will keep their lead in superfast broadband in the mid-term
thanks to their superior network assets. Most cable companies have completed (or are
about to complete) the upgrade to DOCSIS3.0, a technology theoretically supporting
broadband speeds up to 1,000Mbps within the existing coaxial cable networks. The
bandwidth capacity cements their competitive advantage over traditional telecom
operators, currently upgrading to VDSL2, a vectoring technology supporting approx.
100Mbps within the existing copper line networks. Future-proof next-generation network
“fibre to the home” (FTTH), with the potential for virtually limitless capacity with
relatively inexpensive upgrades, comes at significantly higher deployment costs compared
to upgrades of existing networks. Incumbents therefore cling their hopes on G.fast as
interim solution until fibre will have a similar coverage as copper has now. Based on
vectoring as well, G.fast enables data rates of up to several 100 Mbps via existing copper
lines. However, even if already in the lead, cable operators will react by extending the gap
via DOCSIS3.1, a technology boasting bandwidths of up to 10Gbps. Even if consumers
are far from needing such speed right now, in order to compete in the future, incumbents
will step up their superfast broadband rollout efforts by investing in G.fast and the only
cable competitive technology so far: FTTH.
Bandwidths remain largely below EU’s 2020 target EU27 countries upgrade to future-proofed cable & fibre
Source: European Commission, Berenberg Research Source: European Commission, Berenberg Research
0%
10%
20%
30%
40%
50%
60%
70%
2008 2009 2010 2011 2012 2013 2014
> 10 Mbps > 30 Mbps > 100 Mbps
EC target for 100Mbps penetration by 2020
0%
20%
40%
60%
80%
100%
2006 2008 2010 2012 Jan-14 Jul-14
DSL (VDSL included) Cable (DOCSIS 3.0 included)
FTTH/B Other
Catch-up in 4G rollout apace EU5 Ø mobile download speed (Mbps) outpaced US
Source: European Commission, Berenberg Research Source: Netindex, Berenberg Research
Cable operators will keep the
lead over traditional telecoms in
terms of bandwidth speeds,
meaning even more capex for
incumbents in order to deploy
competitive fibre
0%
20%
40%
60%
80%
100%
2008 2009 2010 2011 2012 2013
(Advanced) 3G 4G - LTE
0.00
3.50
7.00
10.50
14.00
17.50
US World EU5 Average
14/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Valuation, structural considerations and company profiles
Long story short: today’s ingredients for a prospering telecommunications business are
convergence offers with exclusive content and functionalities, spiced with consolidation and
management driven opex and capex savings. Altice International (ALTICE) already proved
excellent execution of this recipe by boosting margins in Israel, French Overseas and especially
in the Dominican Republic. The latest acquisition marks the same distinctive pattern of the
Altice Group: targets such as Portugal Telecom have EBITDA margins that are well below
group level, offering scope for earnings and free cash flow improvements. Following the
completion of the Numericable-SFR merger (NUMFP), Altice France is now due first synergy
improvements in 2015. When comparing Altice S.A.’s key subsidiaries, we prefer Altice
International over Altice France given
(i) a proven track record of high EBITDA growth
(ii) lower leverage (3.6x vs 3.7x including the 20% Vivendi stake purchse)
(iii) less potential to experience another near-term re-leveraging acquisition (Altice France
likely to acquire Bouygues Telecom; at 8.0x EBITDA purchase price, leverage would
increase to approx. 4.4x)
(iv) more favourable conditions in the markets Altice International operates in.
2014 full year group results showed a clear outperformance of Altice International compared
to Altice France. However, similar to Numericable-SFR, the International entity has a
considerable execution and integration risk (Portugal Telecom) over the coming years.
Altice S.A. – Altice International – Numericable-SFR capital structure as of Y/E 2014, PF for Portugal Telecoms
Source: Company data, Bloomberg, Berenberg Research
Altice S.A.
Numericable-SFR
Ypso France SASSFR
IsraelAltice Finco
Altice Financing
Dominican
RepublicFOT
PT
Portugal
Altice
Portugal
Guarantor for Altice S.A. SNs
Guarantor for Altice Finco
SNs & Altice Financing SSNs
Indirect Guarantors for Altice Finco SNs
& Altice Financing SSNs
Altice France
Altice West
Europe
Altice
Caribbean
Altice International
Consolidated net debt (xEBITDA): 23,973€m (4.4x), Cash: 1,563€m, RCF:
306€m, Term loans&Other: 5,650€m, Bonds: 19,579€m, thereof this entity:
2,075€m 7.250% 2022 Sr. Unsec. Nts., Recom: OW
750€m 6.250% 2025 Sr. Unsec. Nts., Recom: MW
Consolidated net debt (xEBITDA): 7,320€m (3.6x), Cash: 188€m, RCF: 306€m, Term loans&Other:
1,726€m, Bonds: 5,476€m
Total net debt (xEBITDA): 11,252€m (3.3x),
Cash: 546€m, RCF: 50€m, Term loans&Other:
3,875€m, Bonds: 7,873€m, thereof this entity:
1,000€m 5.375% 2022 Sr. Sec. Nts., Recom: MW
1,250€m 5.625% 2024 Sr. Sec. Nts., Recom: MW
Total debt (Net debt/EBITDA): 1,271€m
(3.7x), Bonds: 1,271€m, thereof this entity:
250€m 9.000% 2022 Sr. Unsec. Nts., Recom: MW
Total debt (Net debt/EBITDA): 6,237€m
(3.1x), RCF: 126€m, Term loans&Other:
2,157€m, Bonds: 3,954€m, thereof this entity:
210€m 8.000% 2019 Sr. Sec. Nts., Recom: OW
300€m 6.500% 2022 Sr. Sec. Nts., Recom: OW
500€m 5.250% 2023 Sr. Sec. Nts., Recom: MW
Sr. Sec. Nts. restricted group
Sr. Nts. restricted group
Sr. Sec. Nts. restricted group
100% 100%
80%
100% 100%
100% 100% 100% 100%
100% 100% 100%
100%
100%
When comparing operating
entities, Altice International
already proved impressive
margin raising abilities post
acquisitions
15/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
The negative outlook on all Altice ratings reflects the aggressive M&A path and the related
significant execution and integration risks. Over the medium term, we expect the company’s
credit profile to become even more leveraged within the limits of its favourable covenants
(relevant debt definition for the incurrence tests under the company’s long-term debt
instruments excludes debt-like items such as pensions or put options and includes expected
synergies and cost savings up-front to EBITDA), however outside of their current rating
category.
EUR denominated bonds of the Altice Group ATCNA* compared to similarly rated peers
Source: Bloomberg, Berenberg Research
Source: Bloomberg, Berenberg Research; *incl. similar rated ALTICE 9 06/23
Since rating agencies have set Altice already on watch for downgrade, we believe that most of
the negative event risk has already been priced in. However, we see considerable justified
spread differences within the Altice universe:
ALTICE: On top of Altice International’s strong operating performance, its lower leverage
and event risk, two of the EUR Altice Financing bonds looks cheaply priced to us. The
ALTICE 6 ½ 01/22 and the ALTICE 8 12/19 offer considerable spread tightening potential
towards their CDS spread level, which is more in line with the ALTICE 5 ¼ 05/23. The
comparison with the closest peers draws a similar picture: Lower rated UPC bonds trade at
tighter spreads within the same time-to-worst bucket. We therefore initiate with an overweight
recommendation on the ALTICE 6 ½ 01/22 and the ALTICE 8 12/19 bond, currently
trading at a respective yield-to-worst of 4.1% and 2.4%. We further add coverage of the
ALTICE 5 ¼ 05/23 and ALTICE 9 06/23 with a marketweight recommendation, the latter
due to its structural subordination.
ALTICE* compared to similarly rated peers NUMFP compared to similarly rated peers
Source: Bloomberg, Berenberg Research; *excl. lower rated ALTICE 9 06/23
Source: Bloomberg, Berenberg Research
ALTICE 8 12/15/19
ALTICE 6 1/2 01/15/22 ALTICE 9
06/15/23
ATCNA 7 1/4 05/15/22
NUMFP 5 3/8 05/15/22
ALTICE 5 1/4 05/15/23
NUMFP 5 5/8 05/15/24
ATCNA 6 1/4 02/15/25
0
100
200
300
400
500
600
700
0 1 2 3 4 5 6 7 8 9 10 11
Z-/
CD
S-s
pre
ad
(b
ps)
time to worst
Altice SA CDS
Finco/Financing CDS
Numericable CDS
MATTER 8 1/4 02/15/20
EIRCMF 9 1/4 05/15/20
UPCV 6 3/8 09/15/22
UPCB 6 3/8 09/15/22
ALTICE 9 06/15/23
ATCNA 7 1/4 05/15/22
ATCNA 6 1/4 02/15/25
VMED 4 1/2 01/15/25
ZIGGO 4 5/8 01/15/25
UNITY 3 3/4 01/15/27
0
100
200
300
400
500
600
700
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Z-s
pre
ad
in
bp
s
time to worst
TNETBB 6 3/8 11/15/20
ALTICE 6 1/2 01/15/22
TNETBB 6 1/4 08/15/22
TNETBB 6 3/4 08/15/24
ALTICE 8 12/15/19
UPCB 6 3/4 03/15/23
ALTICE 5 1/4 02/15/23
UPCB 6 3/8 09/15/22
ZIGGO 4 5/8 01/15/25
VMED 4 1/2 01/15/25
TNETBB 6 5/8 02/15/21
150
200
250
300
350
400
450
0 1 2 3 4 5 6 7 8 9
Z-s
pre
ad
in
bp
s
time to worst
UNITY 5 1/2 09/15/22
UNITY 5 1/8 01/21/23
UNITY 5 5/8 04/15/23
UNITY 4 01/15/25
UNITY 3 1/2 01/15/27
NUMPF 5 3/8 05/15/22
NUMFP 5 5/8 05/15/24
WINDIM 4 07/15/20
200
250
300
350
400
450
500
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Z-s
pre
ad
in
bp
s
time to worst
Overweight recommendation on
ALTICE 6 ½ 01/22 and
ALTICE 8 12/19.
Marketweight on ALTICE
5 ¼ 05/23 and ALTICE 9
06/23
16/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
ATCNA: Within the Altice S.A. structure we initiate with an overweight recommendation on
the ATCNA 7 ¼ 05/22 and a marketweight recommendation on the ATCNA 6 ¼ 02/25.
Despite a longer maturity thus increased uncertainty, ATCNA 6 ¼ 02/25 trades at a similar
yield and a slightly tighter spread compared to ATCNA 7 ¼ 05/22. Compared to similarly
rated peers such as UPC or Virgin, particularly ATCNA 7 ¼ 05/22 spreads look exaggerated
and far above the respective CDS curve. We believe that at current leverage levels, the
potential acquisition of Bouygues would have to be funded with a significant equity
component, which could even have a positive impact on Altice’s credit profile. Hence, we
expect a potential Bouygues merger to have not the same negative impact on the ATCNA
bonds, that the Portugal Telecom acquisition had, which was an all-debt and cash financed
transaction.
NUMFP: We have considerable re-leveraging concerns for Numericable-SFR given the recent
Vivendi stake increase and the potential for consolidation in the French telecommunications
market. Even if the larger part is expected to be equity funded, we expect the remaining debt
component to a large extent to be carried by NUMFP as leverage headroom on the holding
level remains limited at approx. 5.0x leverage post the recent Vivendi stake purchase. NUMFP
already has to carry half of this 20% stake acquisition, amounting to €1.95bn which is expected
to be acquired through a share buyback programme, funded by drawings on RCFs and cash on
the balance sheet. We expected at least Moody’s to one-notch downgrade the company which
explains the current spread levels at B1 comparable peers. Moreover, both bonds the NUMFP
5 ⅜ 05/22 and the NUMFP 5 ⅝ 05/24, trade close to their CDS curve. We therefore initiate
with a marketweight recommendation.
Recent events impacting spreads within the EUR bond universe of the Altice Group
Source: Bloomberg, Berenberg Research
250.0
350.0
450.0
550.0
650.0
750.0
03/14 04/14 05/14 06/14 07/14 08/14 09/14 10/14 11/14 12/14 01/15 02/15 03/15
OA
S s
pre
ad
ATCNA 7 1/4 05/15/22 ATCNA 6 1/4 02/15/25 ALTICE 9 06/15/23 ALTICE 8 12/15/19
ALTICE 6 1/2 01/15/22 ALTICE 5 1/4 02/15/23 NUMFP 5 3/8 05/15/22 NUMFP 5 5/8 05/15/24
ECB announcedexpanded QE
Oi approves sale of PT Portugal
Rumours on acquisition of PT Portugal surface
Overweight recommendation on
ATCNA 7 ¼ 05/22.
Marketweight on ATCNA 6
¼ 02/25
Marketweight recommendation
on both Numericable-SFR
bonds NUMFP 5 ⅜ 05/22 and
NUMFP 5 ⅝ 05/24
17/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Capitalization (2014, pro forma PT)
Debt Instrument Cry Interest Maturity First call Outst. (€m)
xEBITDA Moody’s/ S&P* Cash Price
YTW Z-spread to worst
Recom
6.5%
Altice Financing SA € 01/22 12/[email protected] 300 - B1 (43%)/ BB- (70-90%) 108.4 4.14 405.2 OW
Altice Financing SA $ 6.5% 01/22 12/[email protected] 743 - B1 (43%)/ BB- (70-90%) 102.8 5.80 436.7 -
Altice Financing SA € 8% 12/19 12/15@104 210 - B1 (43%)/ BB- (70-90%) 107.9 2.40 231.7 OW
Altice Financing SA $ 7.875% 12/19 12/[email protected] 380 - B1 (43%)/ BB- (70-90%) 106.1 4.54 416.3 -
Altice Financing SA € 5.25% 02/23 02/[email protected] 500 - B1 (43%)/ BB- (70-90%) 105.3 4.23 390.7 MW
Altice Financing SA $ 6.625% 02/23 02/[email protected] 1,821 - B1 (43%)/ BB- (70-90%) 102.3 6.15 454.5 -
Total Senior Secured - - - - 3,954 - - - - - -
Unsec. Notes & Loans - - - - 2,283 - - - - - -
Total Secured - - - - 6,237 3.1x - - - - -
Altice Finco SA $ 9.875% 12/20 12/[email protected] 351 - B3 (9%)/ B- (0-10%) 110.1 6.34 563.0 -
Altice Finco SA € 9% 06/23 06/[email protected] 250 - B3 (9%)/ B- (0-10%) 116.9 4.60 445.0 MW
Altice Finco SA $ 8.125% 01/24 12/[email protected] 330 - B3 (9%)/ B- (0-10%) 104.4 7.28 558.9 -
Altice Finco SA $ 7.625% 02/25 02/[email protected] 340 - B3 (9%)/ B- (0-10%) 102.1 7.27 552.3 -
Total Senior Unsec. - - - - 1,271 3.7x - - - - -
Total Senior - - - - 7,508 - - - - - -
Cash - - - - 188 - - - - - -
Total Net Debt - - - - 7,320 3.6x - - - - -
Numericable
Numericable Group SA € 5.625% 05/24 05/[email protected] 1250 - Ba3 (50%)/ B+ (50-70%) 105.1 4.77 437.7 MW
Numericable Group SA € 5.375% 05/22 05/[email protected] 1,000 - Ba3 (50%)/ B+ (50-70%) 104.1 4.47 418.7 MW
Numericable Group SA $ 6% 05/22 05/[email protected] 2,893 - Ba3 (50%)/ B+ (50-70%) 100.2 5.94 433.7 -
Numericable Group SA $ 4.875% 05/19 05/[email protected] 1,736 - Ba3 (50%)/ B+ (50-70%) 99.3 5.07 368.6 -
Numericable Group SA $ 6.25% 05/24 05/[email protected] 994 - Ba3 (50%)/ B+ (50-70%) 101.4 6.01 425.5 -
Total Senior Secured - - - - 7,873 - - - - - -
Total Loans - - - - 3,780 - - - - - -
Total Secured - - - - 11,653 - - - - - -
Other debt - - - - 145 - - - - - -
Total Senior Unsec. - - - - 145 - - - - - -
Total Senior - - - - 11,798 - - - - - -
Cash - - - - 546 - - - - - -
Total Net Debt - - - - 11,252 3.3x - - - - -
Altice SA
Altice SA € 7.25% 05/22 05/[email protected] 2,075 - B3 (8%)/ B (10-30%) 104.1 6.31 603.7 MW
Altice SA $ 7.75% 05/22 05/[email protected] 2,097 - B3 (8%)/ B (10-30%) 100.8 7.55 608.0 -
Altice SA € 6.25% 02/25 02/[email protected] 750 - B3 (8%)/ B (10-30%) 99.6 6.30 578.3 UW
Altice SA $ 7.625% 02/25 02/[email protected] 1,308 - B3 (8%)/ B (10-30%) 100.9 7.49 560.2 -
Total Senior Secured - - - - 6,230 - - - - - -
Cash - - - - 829 - - - - - -
Total Net Debt - - - - 5,401 - - - - - -
Consolidated
LTM Q3 2014 PF EBITDA consol. incl. synergies
- - - - 5,463 - - - - - -
Total Altice SA consolidated net debt
- - - - 25,536 - - - - - -
Cash - - - - 1,563 - - - - - -
Total Net Debt 23,973 4.4x - - - - -
Source: Company information, Berenberg Fixed Income Research *(Recovery Rate )
18/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Special considerations/covenants on Altice’s EUR denominated bonds*
Collateral Covenants Indebtedness
Altice SA 6 ¼ 02/25 The Collateral secures both Notes on a pari
passu basis. In value terms, Collateral is only
worth residual equity value in pledged shares,
after repayment of all other liabilities (including
financial debt) of companies whose shares are
pledged and of all their subsidiaries and the
value of the AI Mandatory Convertible Notes
Various of the covenants assess/permit actions
at Issuer/Guarantor level, Numericable level
and/or AlticeInternational level separately
(most notably Indebtedness). There is
protection in some of the covenants regulating
matters as between Numericable group and
Altice International group - but there is not
absolute ring-fencing between them.
In Indebtedness, contribution debt may be
secured pari with Notes, subject to 4x CNLR
test only. Unlimited dividends allowed if CNLR
4x or less
Consolidated Net Leverage Ratio (tests used in CoC,
Indebtedness, Liens, Restricted Payments, Merger):
i) NLR is net of uncapped cash/equivalents, meaning it can be
manipulated by injection of cash
ii) Relevant Credit Facilities baskets excluded from debt
numerators (whether initial RCF or any subsequent RCF or
term bank/bond debt)
iii) Pro Forma EBITDA denominator is last two quarters
multiplied by two, not on last four quarter basis.It includes add-
back for management fees etc. to Permitted Holders and
addback for any uncapped, anticipated cost savings/synergies
(including from general business optimisation programmes)
Altice SA 7 ¼ 05/22
Altice Financing 5 ¼ 02/23
Collateral enforcement/distressed disposals proceeds applied first to Super Priority debt
Unrestricted Subs (not regulated by any of the covenants) will be Altice Finco SA Green Datacenter and Auberimmo SAS. Investment in Altice Finco SA (can include loan or guarantee of its liabilities) can be made under JV/Unrestricted Subs basket up to greater of 3% Total Assets and €325mm. Such upstreaming could also occur under general €350mm/3% Total Assets basket, in addition Competition-law driven disposals will not trigger put (even if Rating Decline) and proceeds of such disposals may repay other (including pari debt) without pro rata offer to Noteholders.
Leverage Ratio and Senior Secured Leverage Ratio used in various contexts are net of uncapped cash/eq and numerator subject to some exclusions (including €1.5B/80% EBITDA Credit Facilities baskets in some places) and denominator subject to aggressive add-backs. Note ability for issuer/Guarantors to guarantee on subordinated basis Holdco [ie Altice Finco SA] debt subject to 4x CNLR (3.7x in OM - so immediate headroom). Guarantees of Holdco debt may also be given under contribution debt basket and €500mm/4% Total Assets general basket without CNLR test and without requirement that such guarantees be subordinated. As drafted such guaranteed Holdco debt may be but does not have to be downstreamed to Restricted Group (thus these could enable dividend recap/incurrence of debt by Altice Finco for other purposes than Restricted Group's business, but guaranteed by Restricted Group)
Altice Financing 8 12/19
The most important piece of Collateral appears to be the HOT Refinancing Note. This is how noteholders have a direct interest in the assets at HOT. However, some of the assets require regulatory approval before they are pledged and if regulatory approval is not obtained within 180 days, the interest rate will increase by 100 bps.
The RP covenant is flawed since it permits unlimited distributions if the 2.75x Leverage Ratio is met
Credit Facility debt will rank ahead of the notes. Since the Issuer is a financing vehicle, all debt it issues will be "secured" by a lien on the proceeds loan. Therefore, the ratio debt exception is tied to a 3x Secured Leverage Ratio. Covenant Parties and Restricted Subs can only incur debt under one of the Permitted Debt exceptions
Altice Financing 6 ½ 01/22
Super Priority Debt of €100mm/4% Total Assets plus certain hedging, which will be repaid from enforcement proceeds ahead of Notes. Super Priority hedging is extensive as it includes not just interest rate/fx hedging of financial debt but fx hedging of opex and capex. In addition to that Guarantees/ Collateral secure substantial amount of other existing debt as well as permitted future debt.
Altice Finco SA (the issuer of the $400mm senior notes to be issued contemporaneously) is
not a Restricted Subsidiary for the purpose of these (Senior Secured) Notes and is thus not bound by the covenants
Ratio Debt incurrence regulated by 3x Senior Secured Leverage Ratio - while leverage ratios typically used for telecoms issuers, note here it is senior secured leverage, not straight total leverage. In ratios, EBITDA is last 2 quarters x 2
Altice Finco 9 06/23
Guarantees will be given on a senior subordinated basis, being subordinated to a substantial amount of such Guarantors' senior debt. The negative pledge will permit a significant amount of debt to be secured either ahead of the Notes (via a first lien on the Collateral) or via pari passu lien on the Collateral. In each case, there could be a significant amount of collateral dilution
The RP covenant is permissive since it permits unlimited distributions if the 2.75x Leverage Ratio is met
Ratio debt incurrence is tied to a 3x Secured Leverage Ratio for the Senior Secured Notes Issuer and a 4x Leverage Ratio for the Issuer. Altice International and Restricted Subs can ONLY incur debt under one of the Permitted Debt exceptions
Numericable 5 3/8 05/22
Holders of the Notes will share in recovery from enforcement of the collateral on a pari passu basis with lenders of the Senior Credit Facility, Revolving Credit Facilities, counterparties to certain hedging obligations and the other series of Notes issued contemporaneously with these Notes.
Change of Control has portability as, to be triggered, put requires Rating Decline for so long as Vivendi owns at least 20% of Issuer. CNLR and CNSSLR tests (used in CoC, Liens, Indebtedness, Restricted Payments, Merger) are all on net basis, meaning they could be managed downwards by cash injection. In both, there are exclusions from debt numerator (large Credit Facilities basket, except for RP test) and CNSSLR numerator very narrowly drawn, making ratio easier to meet.
Summary of Intercreditor Agreement contemplates Super Priority Debt being incurred in future (comprising working capital facilities and hedging) repayable ahead of Notes from Collateral enforcement/disposalproceeds
Numericable 5 5/8 05/24
Sources: Xtract Research Reports, Berenberg Research. *Certain exemptions and further explanations may apply
19/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
ALTICE S.A. (Group)
Bloomberg Ticker: ATCNA<Corp>
Recommendations:
Overweight/Marketweight
Bond (Pricing: 24/03/15 BGN Close) Price Z-spread YTW Callable Volume Recommendation
ATCNA 7 ¼ 05/22 104.1 604bps 6.3% 05/17 @ 105.4 €2,075m Overweight
ATCNA 6 ¼ 02/25 99.6 578bps 6.3% 02/20 @ 103.1 €750m Marketweight
Sources: Bloomberg, Company data, Berenberg Research; *pro forma consolidated (incl. SFR, excl. PT Portugal)
Investment thesis & recommendation
Altice S.A. is a Luxembourg-based holding company, which through its subsidiaries Altice France (Numericable-SFR) and
Altice International operates a multinational cable and telecommunications business. The operating entities boasts leading
market positions for pay-TV, broadband internet, fixed-line and mobile telephony services in their respective countries.
Numericable-SFR’s activities are restricted to France, while Altice International currently has a presence in Israel, Dominican
Republic, French Overseas and Western Europe. By following a very distinct pattern - mainly debt-financed acquisition of
underperforming telecom assets in order to boost their profitability by generating synergies - Altice has emerged out of relative
obscurity. The entire group is highly leveraged, with Altice S.A. reporting 4.4x leverage on a consolidated base. Nevertheless,
Altice S.A. spreads are well above those of lower rated peers, their CDS curve and adequate risk premium levels, especially the
ATCNA 7 ¼ 05/22, which we therefore recommend to overweight.
Altice Group overview by product, region and P&L split (12/2014)
Company data
Selected financials* 2013 2014
Headquarter: Luxembourg (Luxembourg) Revenue (€m): 14,109 13,464
Market cap/employees: €25.5bn/c23,000 EBITDA (€m): 4,279 4,009
Major shareholders: P.Drahi through Next L.P. (61%) Operating FCF (€m): 1,945 1,804
Ratings/Outlook KPIs* 2013 2014
Moody’s: B1/negative Weig. Ø cable ARPU: €41.1 €41.0
Standard & Poor’s: B+/negative Weig. Ø mobile ARPU: €22.8 €21.4
Fitch: n.r. Fixed-line RGUs: 17.94m 18.06m
Bond ratings: B3 (Moody’s), B (S&P) Mobile subscribers: 21.84m 21.16m
Strengths/Opportunities Weaknesses/Threats
• Scale and product diversification positions the company well to
benefit from the convergence trend
• Proven track-record in identifying attractive acquisition targets
and performing successful turnarounds
• High exposure to difficult macro-economic environments
(France/Portugal) and a highly competitive market (France)
• Aggressive, debt-heavy acquisitions left the company’s credit
metrics with almost no headroom at the current rating level
France Israel Portugal (w/o PT) Other
Brands
Numericable, coditel, Tricom, Orange, Outremer, Le
Cable, Green.CH, SporTV and MCS, Wanachi Group,
Auberimmo
Market position Cable and fibre leaderLeader in cable and
growing player in mobile
Cable leader and B2B
operatorBeLux: Dom. Rep.: French OTT:
Fixed broadband
Mobile - - -
Pay TV
Revenue; EBITDA (€m) 11,436; 3,098 857; 412 183;58 76;51 607;283 234;106
1
2 1 1
2 1 2 2 2
1 2 2
2 14
20/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Company snapshot Strong margin improvements for Altice International
Altice S.A. (Altice) is a Luxembourg-based holding company,
which through its subsidiaries Altice France (Numericable-
SFR) and Altice International operates a multinational cable
and telecommunications business providing pay-TV,
broadband internet, fixed-line and mobile telephony services.
Numericable-SFR’s activities are restricted to France while
Altice International currently has a presence in Israel,
Dominican Republic, French Overseas and Western Europe.
The Amsterdam-listed company was founded in 2001 by
Franco-Israeli entrepreneur and billionaire Patrick Drahi, who
still controls the company through his investment vehicle
Next L.P. He fashioned Altice after Liberty Global, the
world’s largest international cable company Mr Drahi once
worked for. Both companies operate with a more leveraged
profile than their peers to help fund attractive acquisitions
which they turnaround through synergies and sheer scale.
Recent developments & Outlook
Altice has emerged out of relative obscurity, becoming one of
Europe’s most aggressive acquirers, shifting the competitive
landscape among European telecoms. In the last twelve
months alone, Altice splashed more than €28bn on
acquisitions. The company bought PT Portugal through its
subsidiary Altice International for €7.4bn, adding the mobile
market leader to the two operators it owns in Portugal.
France’s number two mobile operator SFR was acquired for
€17bn and merged with Numericable, Altice’s cable business
in France. End of February, Altice tightened its grip on SFR
by acquiring Vivendi’s remaining 20% stake, increasing its
ownership to 80%.
The company is a leading proponent of consolidation and
convergence between cable, broadband, fixed-line and mobile
services. Altice CEO Dexter Goei therefore announced a
continuation of the rapid expansion by taking advantage of
the low interest rates environment to challenge the region’s
established telecoms. At the next level, we expect Altice to
push its subsidiary Numericable-SFR towards acquiring
Bouygues. The group has made no secret of its desire to buy
France’s number three mobile operator as it sees significant
synergy potential, however the Bouygues conglomerate has
reiterated that it was not interested in selling its telecoms unit.
In spite of the ongoing damaging price war in the French
telecoms market and the resulting profit slide in 2014,
Bouygues Telecoms insists that it can survive alone. We see a
merger of both companies as a necessity for a market repair in
France. Even though convergence possibilities emerging from
the Numericable-SFR consolidation should further soften
Altice France’s ARPU decline, M&A driven synergies on the
opex and capex side would be necessary to stabilise or even
increase profit margins and operating free cash flow.
Cable ARPU is at least stabilising for Altice
Increased diversification from the acquisition of PT
Significant upside potential for Altice France
Sources: Company data, Berenberg Research
0%
15%
30%
45%
60%
75%
0
2,500
5,000
7,500
10,000
12,500
'13 '14 '13 '14 '13 '14 '13 '14 '13 '14 '13 '14
France Israel Dom.Rep.
Portugal FrenchOST
Others
EBITDA (in €m) Revenue (in €m) EBITDA margin (rhs)
0
10
20
30
40
50
60
0
250
500
750
1,000
1,250
1,500
'13 '14 '13 '14 '13 '14 '13 '14 '13 '14 '13 '14
France Israel Dom.Rep.
Portugal FrenchOST
BeNeLux
RG
U's
Pay TV Broadband Telephone ARPU (in €, rhs)
85%
6%4%1%4%
71%
5%
4%
17%
2%
France Israel Dom. Rep. Portugal Other
2014 Revenue
split pre PT acquisition
2014 Revenue split post PT acquisition
0%
10%
20%
30%
40%
50%
60%
Altice France PortugalTelecom
AlticeInternational
Telenet Ziggo
2014
EB
ITD
A m
arg
in
21/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Credit metrics & rating agencies’ view Debt/EBITDA
Altice’s credit metrics reflect its two-year acquisition spree that
has mostly been financed with high yield debt. In April 2014,
Altice S.A. together with its subsidiary Numericable issued the
largest high yield bond package on record, at $16.7bn, to fund
part of Numericable’s SFR acquisition. End of January 2015,
the holding company together with its subsidiary Altice
International tapped primary debt markets again with a €4.7bn
multi tranche issue to finance the €5.6bn cash payment for its
acquisition of PT’s Portuguese assets. The latest deal was
approved in February, with Altice S.A. and Numericable-SFR
acquiring Vivendi’s remaining 20% stake in Numericable-SFR
partly funded by drawings on RCFs and balance sheet cash.
The rapid pace of deals has led to questions about the high
levels of debt carried by the group. However, as Moody’s
highlights, on the one hand the relevant debt definition for the
incurrence tests under the company’s long-term debt
instruments (incl. 4x Debt/EBITDA leverage test) excludes
debt-like items such as pensions or put options. On the other
hand, EBITDA includes expected synergies and cost savings
up-front. That said, the ability of all credit pools within the
group to incur additional debt is ultimately governed by the
Altice S.A. indentures, under which the Altice Group of
companies has essentially exhausted its point-in-time debt
capacity by raising the Portugal Telecom acquisition debt. S&P
views the latest Vivendi deal as broadly neutral because i.a.
previously included in debt €750m earnout to Vivendi will be
cancelled as part of the transaction. However, Altice remains
close to a downgrade due to a potential earnings related
leverage increase.
For 2015, S&P in its base-case operating scenario expects
EBITDA to remain almost stable, FFO to debt at 11% and
debt to EBITDA of about 5.9x (5.5x if 10% Vivendi stake
acquisition is equity-funded). The rating agency further
assesses Altice’s liquidity position as “adequate”, supported by
meaningful cash, the availability of backup facilities, and no
meaningful debt maturities until 2019. S&P expects Altice’s
sources of liquidity to cover uses more than 1.2x in 2015.
FFO interest coverage
Maturity profile
Sources: Company data, Moody’s, S&P, Berenberg Research
Positive rating drivers Rating constraints
• Scope, scale and geographic diversification of activities (Moody’s)
• Strong competitive market positions (Moody’s/S&P)
• Encouraging success in improving margins (Moody’s)
• Industrial logic of acquisitions and its significant cost saving potential
• Exposure to difficult macro-economic environments (Moody’s)
• High exposure to the very competitive French market (Moody’s)
• Aggressive, debt-heavy-financed acquisition strategy (Moody’s)
• High fully consolidated leverage (Moody’s, S&P)
Upward pressure could arise from… Downward rating pressure could arise from…
• Leverage ratio around 5.0x /4.5x (S&P/Moody’s)
• Successful acquisition integrations (Moody’s/S&P)
• Slowdown in the top-line revenue decline of core assets (S&P)
• Leverage exceeding 6.0x/5.5x (S&P/Moody’s)
• Missing turnaround of SFR’s EBITDA (S&P)
• No successful integration of newly acquired companies (S&P)
• Deteriorating liquidity (Moody’s)
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
2012 2013 2014e
Debt / EBITDA
threshold for down-ward rating pressure
threshold for upward rating pressure
0.0x
1.0x
2.0x
3.0x
4.0x
2012 2013 2014e
FFO interest coverage
threshold for downwardrating pressure
threshold for upward rating pressure
251
3,1714,131
9,950
2,571 2,574 2,398
0
2,000
4,000
6,000
8,000
10,000
12,000
2017 2018 2019 2020 2021 2022 2023 2024 2025
(€m
)
Senior secured notes Senior notes Unsecured notes Loans
22/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
ALTICE INTERNATIONAL
Bloomberg Ticker: ALTICE <Corp>
(Altice Finco/Financing) Recommendations:
Overweight/Marketweight
Bond (Pricing: 24/03/15 BGN Close) Price Z-spread YTW Callable Volume Recommendation
ALTICE 8 12/19 (Financing) 107.9 232bps 2.4% 12/15 @ 104.0 €210m Overweight
ALTICE 6 ½ 01/22 (Financing) 108.4 405bps 4.1% 12/16 @ 104.9 €300m Overweight
ALTICE 5 ¼ 02/23(Financing) 105.3 391bps 4.2% 02/18 @ 103.9 €500m Marketweight
ALTICE 9 06/23 (Finco) 116.9 445bps 4.6% 06/18 @ 104.5 €250m Marketweight
Sources: Bloomberg, Company data, Berenberg Research; *pro forma consolidated (w/o PT)
Investment thesis & recommendation
Altice International operates through its indirect subsidiaries a multinational telecommunications business with a strong
presence in Western Europe, Israel, Dominican Republic and French overseas. Thus, Altice International (previously known
as Altice VII) is the holding company for all Altice subsidiaries (including Portugal Telecom) except for Numericable-SFR
(Altice France). Compared to Altice France, Altice International has already demonstrated the successful realisation of its
business model “acquiring & restructuring” by boosting margins in almost all of its markets. When further comparing both of
Altice S.A.’s key entities, we also prefer Altice International’s lower leverage, the healthier markets the company operates in
and the lower risk to experience another near-term re-leveraging acquisition. Moreover, the ALTICE 8 12/19 and the
ALTICE 6 ½ 01/22 offer considerable spread tightening potential towards their CDS curve, also emphasised by a comparison
with the closest peers.
Revenue split pre PT acquisition 2014 Revenue split post PT acquisition 2014 Revenue split by products pre PT in 2014
Company data
Selected financials* 2013 2014
Headquarter: Luxembourg Revenue (€m): 2,070 2,028
Market cap/employees: €5.1bn (estimated w/o PT)/c11,200 EBITDA (€m): 803 936
Major shareholders: Altice S.A. (100%) Operating FCF (€m): 399 513
Ratings/Outlook KPIs* 2013 2014
Moody’s: Financing: B1/neg, Finco: B3/neg. Weig. Ø cable ARPU: €39.6 €40.8
Standard & Poor’s: Financing: BB-, Finco: B- (bonds only) Weig. Ø mobile ARPU: €16.5 €15.3
Fitch: n.r. Fixed-line RGUs: 4.33m 4.38m
Bond ratings: Moody’s: Financing: B1, Finco: B3 Mobile subscribers: 4.80m 4.92m
Strengths/Opportunities Weaknesses/Threats
• Encouraging results in improving margins (Israel, Portugal)
• PT acquisition offers potential of material synergies from areas
such as outsourcing, purchasing and simplification of operating
processes as well as offers convergence possibilities
• High exposure to difficult macro-economic environment
(Portugal)
• Aggressive, debt-heavy acquisitions left the company’s credit
metrics with almost no headroom at the current rating level
Israel 43%
Dom. Rep. 29%
Benelux 4%
Portugal 9%
FOT 12%
Other 4%
Israel 19%
Dom. Rep. 13%
Benelux 2%
Portugal 60%
FOT 5%
Other 2%
Cable 50%
Mobile 39%
Others 11%
23/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Company snapshot
Revenues & profitability of Altice International
Altice International is a Luxembourg-based holding company,
which through its indirect subsidiaries operates a multinational
telecommunications business with a strong presence in
Western Europe, Israel, Dominican Republic and French
overseas. Thus, Altice International (previously known as
Altice VII) is the holding company for all Altice subsidiaries
(including Portugal Telecom) except for Numericable-SFR.
Recent developments & Outlook
Compared to Altice France, Altice International has already
demonstrated a successful realisation of its business model of
“acquiring & restructuring” by boosting margins in Israel
(+7ppt yoy to 48% EBITDA margin in 2014), French
Overseas (+8ppt to 45%) and especially in the Dominican
Republic (+10ppt to 47%). Due to the geographic dispersion
of these businesses, material synergies between them are
limited, thus the profitability improvements are mostly
attributable to management’s ability to turnaround weak
operations.
Rather than on top-line growth, management focusses on
generating profits by improving operating performance driven
by cost reductions. Sustaining the improvements Overseas, in
Benelux and in Israel and realising new ones for the recently
acquired Portuguese assets of Portugal Telecom is the new
objective for the management team.
Portugal Telecom is not merely a European operator, it is the
dominant player on the Portuguese telco stage, boasting
leading positions in fixed broadband and pay-TV, and having
one of the most extensive fibre networks in Europe with
about 60% of Portuguese households covered.
Portugal Telecom already earns margins that are well above
the level of previously acquired companies, however, still with
a somewhat 10ppt gap to Altice International’s group margin.
Altice sees considerable synergies in combining Portugal
Telecom with its Portuguese cable businesses Cabovisao and
Oni, driving consolidation in the market, allowing quad-play
offerings, cost cuttings and improving procurement. The
combined entities claim over 50% broadband market share
and leading positions in most segments of the Portuguese
telecom market.
Despite the still difficult – although improving – macro-
environment, we share Altice International’s positive
operational outlook for its Portuguese investments. We expect
convergence to stabilise on the top-line while scale and
efficient management reduce costs, thus bumping up margins.
However, the Portugal Telecom 50% EBITDA margin target
announced by Altice’s management appears quite ambitious to
us (€140m synergies over the medium term).
All subsidiaries improved their EBITDA margin in 2014
Successful EBITDA margin expansion 2014 vs. 2013
Almost 10ppt upside for newly acquired PT
Sources: Company data, Berenberg Research
0%
10%
20%
30%
40%
50%
0
500
1,000
1,500
2,000
2,500
2012 2013 2014Revenue (€m) EBITDA (€m)
OpFCF (€m) EBITDA margin (rhs)
0%
15%
30%
45%
60%
75%
0
200
400
600
800
1,000
'13 '14 '13 '14 '13 '14 '13 '14 '13 '14
Israel Dom. Rep. Portugal French OST Others
EBITDA (in €m) Revenue (in €m) EBITDA margin (rhs)
68%
48% 45%
47%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Benelux Israel FOT Dom. Rep.
pts
0%
10%
20%
30%
40%
50%
60%
Altice France PortugalTelecom
AlticeInternational
Telenet Ziggo
2014
EB
ITD
A m
arg
in
24/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Credit metrics & rating agencies’ view
Debt/EBITDA
Similar to Altice S.A., Altice International’s credit metrics
reflect a period of rapid growth that has mostly been financed
with high yield debt. The last tap took place end of January
2015, with Altice International successfully placing a € €4.7bn
multi tranche issue together with its holding company Altice
S.A. to finance the €5.6bn cash payment for its acquisition of
PT’s Portuguese assets.
Altice International’s acquisitions mark a very distinct pattern:
targets such as Portugal Telecom have EBITDA margins that
are well off the pace of the group level, offering scope for
earnings improvements and free cash flow improvements.
However, in contrast to the SFR deal, which was initially seen
credit positive by the rating agencies, the acquisition of
Portugal Telecom has lead to negative reactions of both S&P
and Moody’s, resulting in an outlook downgrade to negative.
The outlook reflects the impact of the all-debt financed
transaction on leverage as well as the considerable integration
and execution risks. We only see a potential one-notch
downgrade in relation with further debt-financed acquisitions
of Altice International, which is by far less likely compared to
Numericable-SFR with its inherent Bouygues acquisition risk.
Our expectations with regard to cash flows are of a more
positive kind: Altice International’s existing networks are
generally well invested with some exceptions such as Israel
where the rollout of 3G and 4G will continue to be capex-
heavy. Nevertheless, we expect Altice International’s overall
capex needs to be low in the years to come, in particular
compared to its closest competitors. Due to its future-proof
cable-heavy network infrastructure, we expect to see limited
investment pressure, which together with a continued positive
impact from cost synergies should allow for positive free cash
flow generation at the various geographic asset pools before
dividend up-streaming. Moreover, expected cash generation at
the operating subsidiary level is expected to cover the
company’s near-term liquidity needs in the ordinary course of
business. The net leverage covenant has recently increased to
5.25x, offering tolerance for all facilities.
FFO interest coverage
Maturity profile
Sources: Company data, Moody’s, S&P, Berenberg Research
Positive rating drivers Rating constraints
• Increased scale & scope from the PT acquisition (Moody’s)
• High cost cutting and synergy potential at recent acquisitions
(Moody’s)
• Geographic diversification (Moody’s)
• Rapid pace of acquisition activity & geographic expansion (Moody’s)
• All-debt-financed nature of the PT acquisition (Moody’s)
• High exposure to difficult macro environ. in Portugal (Moody’s)
• Complexity of the company’s capital structure (Moody’s)
Upward rating pressure could arise from… Downward rating pressure could arise from…
• Leverage well below 4.0x on a sustainable basis (Moody’s)
• Visible levels of free cash flow generation (Moody’s)
• Leverage exceeding 5.0x for a sustained period of time (Moody’s)
• Material setbacks in integrating acquisitions (Moody’s)
• Any additional material acquisition (Moody’s)
• Deteriorating liquidity (Moody’s)
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
2011 2012 2013 2014e
Debt / EBITDA
threshold for downwardrating pressure
threshold for upward rating pressure
0.0x
1.0x
2.0x
3.0x
4.0x
2011 2012 2013 2014e
FFO interest coverage
threshold for downwardrating pressure
threshold for upward rating pressure
251
1,435
351
1,885
2,571
330 340
0
500
1,000
1,500
2,000
2,500
3,000
2017 2018 2019 2020 2021 2022 2023 2024 2025
(€m
)
Senior secured notes Senior notes
Unsecured notes Term loans
25/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
ALTICE FRANCE (Numericable-SFR)
Bloomberg Ticker: NUMFP <Corp>
Recommendations:
Marketweight
Bond (Pricing: 24/03/15 BGN Close) Price Z-spread YTW Callable Volume Recommendation
NUMFP 5 ⅜ 05/22 104.1 419bps 4.5% 05/17 @ 104.0 €1000m Marketweight
NUMFP 5 ⅝ 05/24 105.1 438bps 4.8% 05/19 @ 102.8 €1250m Marketweight
Sources: Bloomberg, Company data, Berenberg Research; *pro forma consolidated (incl. SFR)
Investment thesis & recommendation
Paris-based Numericable-SFR is the second largest provider of telecommunications services in France, which is the most
important market for the Altice Group, generating around 85% of revenues (pre PT consolidation). This share will further
increase if French media, construction and telecoms conglomerate Bouygues changed its mind about selling its Telecoms
business to Numericable-SFR. Altice has made no secret of its desire to buy France’s number three mobile operator as it sees
significant synergy potential. Similar as for its most recent acquisition, Vivendi’s telecom arm SFR, where synergies from
capex savings (optimisation of networks, fibre rollout, procurement), opex reductions (sales & marketing, network operations)
and revenue synergies (service bundles & less competition) are expected to be realised from 2015 on. The potential Bouygues
acquisition raises considerable re-leveraging concerns. We expect at least Moody’s to one-notch downgrade the company
which explains the current spread levels at lower B1 comparable peers. Moreover, both bonds the NUMFP 5 ⅜ 05/22 and
the NUMFP 5 ⅝ 05/24 trade close to their CDS curve. We therefore initiate with a marketweight recommendation.
Numericable-SFR Group key figures 2014
Company data
Selected financials* 2013 2014
Headquarter: Paris (France) Revenue (€m): 12,039 11,436
Market cap/employees: €25.5bn/11,800 EBITDA (€m): 3,485 3,098
Major shareholders: Altice S.A. (80%) Operating FCF (€m): 1,555 1,317
Ratings/Outlook KPIs* 2013 2014
Moody’s: Ba3/watch negative Cable ARPU: €41.3 €41.0
Standard & Poor’s: B+/negative Mobile ARPU: €23.9 €22.5
Fitch: n.r. Fixed-line RGUs: 13.61m 13.68m
Bond ratings: -- Mobile subscribers: 17.04m 16.24m
Strengths/Opportunities Weaknesses/Threats
• Strong competitive advantage through future-proof cable
networks
• Significant synergy potential from opex and capex savings
following the SFR merger
• Highly leveraged, with no easing signs due to unsatisfied M&A
appetite and potential Bouygues deal
• High integration and execution risks in a highly competitive and
saturated market (France)
Fix Data
8.2 million
households
subscribing to at least
high speed broadband
Voice -
Mobile
~23 million
mobile customers
4G Data3G Data
More than 75% of
the population
covered with very
high speed mobile
broadband
More than 99% of
the population
covered by the
3G+ network
Voice - Fix
Business
More than 250
carrier customers
Fixed-line, MVNO,
International
190.000 business
customers
26/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Company snapshot Numericable-SFR deal had a stabilising impact SFR’s
EBITDA margin Numericable-SFR, headquartered in Paris (France), is the
second largest provider of telecommunications services in
France. Numericable-SFR’s controlling shareholder (80%) is
Luxembourg-based Altice S.A.
Numericable was formed through the consolidation of all of
the major cable operators in France over the past decade,
including TDF Cable, NC Numericable, France Telecom
Cable and Completel. Following first triple-play marketing in
2009, the company started quad-play offerings including
mobile services via an MVNO agreement with Bouygues
Telecom in 2011 before it finally merged with mobile operator
SFR in 2014.
Recent developments & Outlook
As of today, France is the most important region for the Altice
Group, generating around 85% of revenues (pre PT
consolidation). This share would further increase if French
media, construction and telecoms conglomerate Bouygues
changes its mind about selling its Telecoms business to
Numericable-SFR. Altice France has made no secret of its
desire to buy France’s number three mobile operator as it sees
significant synergy potential.
Similar as for its most recent acquisition, the Vivend’s telecom
arm SFR, where synergies from capex savings (optimisation of
networks, fibre rollout, procurement), opex reduction (sales &
marketing, network operations) and revenue synergies should
already come to effect from 2015 on. The SFR deal had a
clearly positive impact on Altice France’s business profile,
hence Moody’s placed its B1 rating on review for upgrade
following the announcement in April 2014. However, the new
number two operator in the French telecommunications
market has some clear obstacles to face in the current year: (i)
a still weakening operating performance of SFR with limited
growth prospects in a highly saturated market, (ii) ambitious
synergy targets are likely to absorb Numericable’s management
capacities for the coming years and (iii) additional investment
needs in the mobile network to remain competitive.
A combination with Bouygues Telecom might help ease the
competitive pressure and generate substantial synergies.
However, in spite of the ongoing damaging price war in the
French telecoms market and the resulting profit slide in 2014,
Bouygues Telecoms insists that it can survive alone.
We see a merger of both companies as a necessity for a market
repair in France. Even though convergence possibilities
emerging from the Numericable SFR consolidation should
further soften Altice France’s ARPU decline, further M&A
driven synergies on the opex and capex side would be
necessary to stabilise or even increase profit margins and
operating free cash flow.
Numericable-SFR is the second largest mobile operator
Number three in the French fixed-line market
Maintenance offers great capex savings potential
Sources: Company data, Berenberg Research
0%
10%
20%
30%
40%
50%
2011 2012 2013 2014
Numericable SFR
Orange 35.8%
Numericable-SFR 28.1%
Iliad 13.1%
Bouygues 11.5%
MVNO's 11.5%
Orange 42.7%
Numericable-SFR 21.5%
Iliad 25.3%
Bouygues 10.5%
Maintenance 51%
Customer Acquisition
21%
Network Upgrade 28%
€1,781m15.6% of total revenue
27/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Credit metrics & rating agencies’ view
Debt/EBITDA
In April 2014, Numericable together with its TopCo Altice
S.A. issued the largest high yield bond on record, at $16.7bn,
to fund part of Numericable’s SFR acquisition. The SFR deal
left the new Numericable-SFR highly leveraged, which is
about to increase further as a consequence of the latest deal
approved in February 2015: Numericable-SFR together with
Altice S.A. acquires Vivendi’s remaining 20% stake in
Numericable-SFR. The €3.9bn purchase price will be split
equally. Nummericable-SFR’s intends to acquire its €1.95bn
stake through a share buyback programme, funded by
drawings on its RCFs and cash on its balance sheet. Altice
S.A.’s payment has to be made by April 2016 and is secured
through a bank guarantee.
Both rating agencies reacted by downgrading their outlook on
Numericable-SFR to negative. Moody’s even placed the
ratings under review for downgrade. The agency sees
significant uncertainties about the funding of the €1.95bn
share repurchase programme and its impact on Numericable-
SFR’s liquidity, leverage and operational flexibility. Both
agencies view the transaction as aggressive given the only
recently closed acquisition of SFR and the early stage of
integration. However, S&P overall expects the transaction to
have no significant impact on credit metrics as a planned
€750m earnout to Vivendi will be cancelled as part of the
transaction and most of excess cash was previously assumed
to be upstreamed as dividends to shareholders.
However, a large portion of the upcoming Numericable-SFR
free cash flow will be distributed to shareholders as the holdco
Altice S.A. needs to cover interest payments on €6.2bn of
holdco debt (including debt for the PT acquisition) at the
holdco level.
For 2015, S&P forecasts an adjusted debt/EBITDA slightly
above 4.0x for Numericable-SFR, still considerably lower than
the consolidated group average. However, the assumption
does not factor in any business combination with Bouygues
Telecom in the context of a consolidation of the French
mobile market, which Moody’s believes could occur over time.
FFO interest coverage
Maturity profile
Sources: Company data, Moody’s, S&P, Berenberg Research
Positive rating drivers Rating constraints
• SFR merger should lead to synergies from capex savings, opex
reductions and revenue synergies (Moody’s)
• Company’s significant leverage, also on the holdco level (Moody’s)
• Significant integration and execution risks (Moody’s)
• Exposure to a highly competitive and saturated market (Moody’s)
Upward rating pressure could arise from… Downward rating pressure could arise from…
• Leverage below 3.75x on an ongoing basis (Moody’s)
• Free cash flow/debt ratio greater than 10% (Moody’s)
• Success in broadly achieving synergy and cost savings targets
(Moody’s)
• Leverage exceeding 6.0x/5.5x (S&P/Moody’s)
• Missing turnaround of SFR’s EBITDA (S&P)
• No successful integration of newly acquired companies (S&P)
• Deteriorating liquidity (Moody’s)
0.0x
1.5x
3.0x
4.5x
6.0x
7.5x
2011 2012 2013 2014e
Debt / EBITDA
threshold for downwardrating pressure
threshold for upward rating pressure
0.0x
1.5x
3.0x
4.5x
6.0x
2011 2012 2013 2014e
FFO interest coverage
threshold for down-ward rating pressure
threshold for upward rating pressure
1,736
3,780 3,893
2,244
0
2,000
4,000
6,000
2018 2019 2020 2021 2022 2023 2024
(€m
)
Senior Secured Notes Loans
28/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Please note that the use of this research report is subject to the conditions and restrictions set forth in the
“General investment-related disclosures” and the “Legal disclaimer” at the end of this document.
For analyst certification and remarks regarding foreign investors and country-specific disclosures, please
refer to the respective paragraph at the end of this document.
Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)
Company Disclosures
Altice S.A. no disclosures
Altice International S.a.r.l no disclosures
Numericable-SFR SAS no disclosures
(1) Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as “the Bank”) or its affiliate(s) was Lead Manager or Co-Lead Manager over the previous 12 months of a public offering of this company.
(2) The Bank acts as Designated Sponsor for this company.
(3) Over the previous 12 months, the Bank and/or its affiliate(s) has effected an agreement with this company for
investment banking services or received compensation or a promise to pay from this company for investment
banking services.
(4) The Bank and/or its affiliate(s) holds 5 % or more of the share capital of this company.
(5) The Bank holds a trading position in shares of this company.
Initiation of coverage: 25 March 2015
Historical recommendation changes for ATCNA 7 1/4 05/22 in the last 12 months
Date Recommendation
25 March 2015 Overweight
Historical recommendation changes for ATCNA 6 1/4 02/25 in the last 12 months
Date Recommendation
25 March 2015 Marketweight
Historical recommendation changes for ALTICE 8 12/19 in the last 12 months
Date Recommendation
25 March 2015 Overweight
Historical recommendation changes for ALTICE 6 1/2 01/22 in the last 12 months
Date Recommendation
25 March 2015 Overweight
29/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Historical recommendation changes for ALTICE 5 1/4 02/23 in the last 12 months
Date Recommendation
25 March 2015 Marketweight
Historical recommendation changes for ALTICE 9 06/23 in the last 12 months
Date Recommendation
25 March 2015 Marketweight
Historical recommendation changes for NUMFP 5 3/8 05/22 in the last 12 months
Date Recommendation
25 March 2015 Marketweight
Historical recommendation changes for NUMFP 5 5/8 05/24 in the last 12 months
Date Recommendation
25 March 2015 Marketweight
Berenberg distribution of recommendations and in proportion to investment banking services
Overweight 25.64 % 9.09 %
Underweight 26.50 % 18.18 %
Marketweight 47.86 % 72.73 %
Valuation basis / recommendation key
Overweight: Sustainable spread tightening potential higher 10% within 3-6 months.
Underweight: Sustainable spread widening potential lower 10% within 3-6 months.
Marketweight: Limited spread movement potential. No immediate catalyst visible.
NB The Bank’s Fixed Income Research Department does not make recommendations on the basis of
absolute performance, but on performance expected relative to the market or peer group as spreads move
with markets and sectors as well as with the issuer itself.
Competent supervisory authority
Bundesanstalt für Finanzdienstleistungsaufsicht -BaFin- (Federal Financial Supervisory Authority),
Graurheindorfer Straße 108, 53117 Bonn and Lurgiallee 12, 60439 Frankfurt am Main
General investment-related disclosures
Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as „the Bank“) has made every effort to carefully research
all information contained in this financial analysis. The information on which the financial analysis is based has been
obtained from sources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the
relevant specialised press as well as the company which is the subject of this financial analysis.
30/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
Only that part of the research note is made available to the issuer (who is the subject of this analysis) which is
necessary to properly reconcile with the facts. Should this result in considerable changes a reference is made in the
research note.
Opinions expressed in this financial analysis are our current opinions as of the issuing date indicated on this
document. We do not commit ourselves in advance to whether and in which intervals an update is made. The
companies analysed by the Bank are divided into two groups: “full coverage“ - continued updates - and “screening
coverage“ - updates as and when required in irregular intervals.
The functional job title of the person/s responsible for the recommendations contained in this report is “Fixed-
Income Research Analyst” unless otherwise stated on the cover.
The following internet link provides further remarks on our financial analyses:
https://www.berenberg.de/en/fir_en.html
Legal disclaimer
This document has been prepared by Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as „the Bank“). This
document does not claim completeness regarding all the information on the stocks, stock markets or developments
referred to in it.
On no account should the document be regarded as a substitute for the recipient procuring information for
himself/herself or exercising his/her own judgements.
The document has been produced for information purposes for institutional clients or market professionals.
Private customers, into whose possession this document comes, should discuss possible investment decisions with
their customer service officer as differing views and opinions may exist with regard to the stocks referred to in this
document.
This document is not a solicitation or an offer to buy or sell the mentioned stock.
The document may include certain descriptions, statements, estimates, and conclusions underlining potential market
and company development. These reflect assumptions, which may turn out to be incorrect. The Bank and/or its
employees accept no liability whatsoever for any direct or consequential loss or damages of any kind arising out of the
use of this document or any part of its content.
The Bank and/or its employees may hold, buy or sell positions in any securities mentioned in this document,
derivatives thereon or related financial products. The Bank and/or its employees may underwrite issues for any
securities mentioned in this document, derivatives thereon or related financial products or seek to perform capital
market or underwriting services.
Analyst certification
I, Alexandre Daniel, hereby certify that all of the views expressed in this report accurately reflect my personal views
about any and all of the subject securities or issuers discussed herein.
In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the
specific recommendations or views expressed in this research report, nor is it tied to any specific investment banking
transaction performed by the Bank or its affiliates.
Remarks regarding foreign investors
The preparation of this document is subject to regulation by German law. The distribution of this document in other
jurisdictions may be restricted by law, and persons into whose possession this document comes should inform
themselves about, and observe, any such restrictions.
31/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
United Kingdom
This document is meant exclusively for institutional investors and market professionals but not for private customers.
It is not for distribution to or the use of private investors or private customers.
United States of America
This document has been prepared exclusively by the Bank. Although Berenberg Capital Markets LLC, an affiliate of the
Bank and registered US broker-dealer, distributes this document to certain customers, Berenberg Capital Markets LLC
does not provide input into its contents, nor does this document constitute research of Berenberg Capital Markets LLC.
In addition, this document is meant exclusively for institutional investors and market professionals, but not for private
customers. It is not for distribution to or the use of private investors or private customers.
This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC
(+1 617.292.8200), if you require additional information.
Third-party research disclosures
Company Disclosures
Altice S.A. no disclosures
Altice International S.a.r.l no disclosures
Numericable-SFR SAS no disclosures
(1) Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any class of the subject
company by the end of the prior month.*
(2) Over the previous 12 months, Berenberg Capital Markets LLC has managed or co-managed any public offering
for the subject company.*
(3) Berenberg Capital Markets LLC is making a market in the subject securities at the time of the report.
(4) Berenberg Capital Markets LLC received compensation for investment banking services in the past 12 months, or
expects to receive such compensation in the next 3 months.*
(5) There is another potential conflict of interest of the analyst or Berenberg Capital Markets LLC, of which the
analyst knows or has reason to know at the time of publication of this research report.
* For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the ‘Disclosures in respect of
section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)’ section above.
Copyright
The Bank reserves all the rights in this document. No part of the document or its content may be rewritten, copied,
photocopied or duplicated in any form by any means or redistributed without the Bank’s prior written consent.
© June 2014 Joh. Berenberg, Gossler & Co. KG
32/33 Joh. Berenberg, Gossler & Co. KG Sector Special European Telecoms – Vol. I
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