Altice: Credit Suisse Stays Neutral, ABN Amro Buys

Altice seems to be in a precarious financial conditions and has lost the faith of investors. Shares have lost 48%, mainly due to the deteriorating KPIs and financial indicators at SFR.

At a recent conference, Patrick Drahi took the helm to try to calm investors but so far, little results. And brokers seem to have conflicting views.

To comfort Altice, ABN Amro’s analysts have issued a « Buy » recommendation on the shares, but not all are convinced. The same day, Credit Suisse also published a report with a Neutral rating, which comes a couple of days after BofAML downgraded the stock.

Here are their arguments.

(DISCLAIMER: This information is not an investment recommendation. It is just given as an information, not an advice. You need to do your own due diligence to see if an investment fits in your Investment Policy Statement, provided you have one).

From ABN:

« With the sahres having lost 48% since the start of the month, we now see a very good buying opportunity. EUR 35 bn of EUR 48 bn of net debt has been refinanced in the last year, and we see neither a breach of covenant nor a share issue looming. Less than 20% of this debt matures in the next four years. Revenues at SFR might decline for two more years, but French restructuring benefits and US cost synergies will support high earnings growth, in our view. Free cash flow generation remains strong (2017e: EUR 5.5bn), while capex is expected to peak this year at EUR 4bn, which allows for a rapid de-leveraging. »

Now from Credit Suisse:

« We cut 18E EBITDA -5% and our target price to €10 (was €17) after Altice published its full accounts this week and to incorporate the guidance issued at last week’s presentation regarding the strategy shift. The shares have de-rated but we remain Neutral given our continued concerns about the long-term impact from Altice’s strategy.

(…)

Catalysts and risks: Q4 17 results around Feb/Mar-18. The weak recent operational performance and high leverage (>5x net debt/EBITDA) is the main downside risk. The company has announced a plan to shift strategy and sell assets, which could be an upside risk

Valuation: Altice shares trade on an 11% 2018E free cash flow yield (peers 7%) but there is a great deal of uncertainty on the outlook for the business. The current share price implies a stub (ex US) EV/EBITDA of 5.6x, not unusual for a business that has just delivered -4% organic EBITDA growth. Interestingly Altice ex US’s current market-based EV (market cap plus net debt ex US EV) is €32bn, in line with net debt for the group ex US (Q3 17).«