While Orange’s senior bonds offer a pickup over those of Deutsche Telekom, they trade among the tightest in the BBB benchmark – this leaves little upside over the short term. Its bonds trade at fair and reflect the issuer’s relatively good credit quality. Orange is a core holding for credit investor – its bonds are frequently recommended to private as well as institutional buy and hold investors. The issuer’s hybrids currently offer a pickup of about 150–200bps over the issuer’s interpolated senior curve. Considering the low structural risks associated with this name, we think this offers good carry for a wide range of fixed income investors.
Orange ranks among the strongest telecommunication names in the global coverage. Its credit profile benefits from its broad geographical diversification, its scale, solid market positions, and its strong network assets. Its credit profile also benefits from its commitment to prudent financial policies and continued adherence to its long-running leverage target of 2x over the medium term. The issuer’s 5G/fiber network buildup is far advanced and capex intensity will decline over the coming years, resulting in growing free cash flow generation and growing rating headroom. While the headwinds in the domestic wholesale segment and the structural declines in the enterprise segment remain a drag, we see the issuer as well-positioned at current rating levels.