August 2, 2018 / 9:33 AM / 9 months ago

Investors unhappy as Altice Europe sacrifices margins to gain customers

PARIS (Reuters) - Investors punished Altice Europe (ATCA.AS) on Thursday for sacrificing its margins to gain market share in the second quarter, a strategy turnaround deemed risky for the debt-ridden telecoms and cable group.

The Amsterdam-listed stock was the worst performer on the STOXX Europe 600 Index in early trading, plunging by close to 14 percent by 0820 GMT.

Altice Europe’s majority owner, Patrick Drahi, is striving to recover investor confidence after disappointing commercial performances in France, the group’s biggest market, severely hit its shares last year, prompting a management and strategy reshuffle.

Previously known for its ruthless cost management, the group has shifted gear to focus on gaining market share, improving its services and reducing its 32 billion euro ($37 billion) pile of debt.

The number of Altice Europe’s broadband subscribers grew for the second quarter in a row in France, with 13,000 net additions over the period, it said on Thursday.

It also added 211,000 mobile subscribers in the country, driven by new commercial offers that started in March.

“There’s indeed a recovery in net additions, but these are made at a very high cost of acquisition,” said Thomas Coudry, an analyst at Bryan Garnier.

“This raises questions about their capacity to grow their customer base at reasonable prices.”

The average revenue per user, a key indicator used within the industry, dropped by 2.6 euros in the second quarter in France’s fixed business, from the first three months of the year, to 32.1 euros.

It dropped by 1.5 euro in the mobile business and the steep falls are poised to weigh on future revenues and margins, analyst said.

Altice Europe’s second-quarter core operating profit tumbled by 9.1 percent from a year ago to about 1.32 billion euros.

Revenues, roughly in line with market expectations, were down by 3.8 percent to 3.48 billion euros. The margin stood at 37.8 percent, down from 40.1 percent a year ago.

The group also added customers in Portugal, where it owns the biggest telecoms operator.


“To increase revenue we need first to recruit the customers we lost last year,” Chief Executive Officer Alain Weill told reporters during a call.

Weill said he expected revenue and margins to fall in 2018, with sales picking up in 2019.

Altice unit SFR, France’s second-biggest telecom operator, has lost more than 1.6 million mobile customers and over half a million fixed broadband customers since 2014 when Drahi took control of the group.

This has raised concerns among investors about Drahi’s ability to repay debt in a rising interest rate environment and has led to the separation of his U.S. cable activities, folded under Altice USA (ATUS.N), from Altice Europe.

SFR’s aggressive promotions are now turning investors’ attention to French rival Iliad (ILD.PA), whose situation is now seen as being weakened by the defection of mobile customers.

Iliad, founded by billionaire Xavier Niel, said late on Wednesday that it had lost customers in some parts of its business but won over others elsewhere.

Altice Europe confirmed its full-year targets, including an operating free cashflow in the range of 2.3 billion to 2.5 billion euros.

The operating free cashflow generated by its French division should be at the low end of 1.5 billion to 1.6 billion euro guidance it gave in May.

($1 = 0.8585 euros)

Reporting by Mathieu Rosemain and Gwenaelle Barzic; Editing by Sudip Kar-Gupta and Susan Fenton

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