FTE to Acquire Stake in Korek - Analyst Blog

According to reports and market sources, France Telecom (FTE), the world's largest telecommunications carrier in Paris, is in talks to buy a minority stake in Korek Telecom, Iraq's third-largest mobile phone operator. The acquisition will be a part of the company's strategy to expand its presence in the Middle East.

To offset sluggish demand and intense competition in Europe, France Telecom is expanding its position in emerging markets across Africa, Asia and the Middle East. The company expects to double its revenue in these markets by 2015 largely via acquisitions. In September, France Telecom acquired a 40% stake in Morroco's Meditel for €640 million.

France Telecom faces severe rivalry in its domestic fixed and mobile operations from Bouygues (EN), Telecom Italia spA (TI) and Vodafone Group Plc. (VOD). Competition in the domestic mobile market intensified in 2009, following the entry of broadband provider Iliad SA.

France Telecom's third quarter revenue inched up 1% and EBITDA dropped 2.3% from the year-ago level. Like its European peers, France Telecom contends with increasing regulatory pressure, which has been adversely affecting its revenues.

Revenue dipped 0.6% year over year in the recently concluded quarter, reflecting this regulatory pressure. Reduction in mobile termination rates (fees operators charge each other to connect calls) in key markets such as UK and Spain remain one of the key reasons for revenue declines across the markets.

Going forward, France Telecom continues to invest strongly in the deployment of a new fiber optic network in France as well as “green” networks such as the Oryx program for the solar-powered mobile telephone in Africa.

Further, the company continues to strengthen its balance sheet by minimizing its debt position and reiterating its objectives to generate an organic cash flow of €8 billion for 2010 and 2011. France Telecom remains attractive for income-oriented investors based on a healthy dividend payout.

The company currently pays an annual dividend of €1.20 per share based on a half-yearly basis. France Telecom is expected to pay an increased annual dividend of €1.40 per share for 2010, 2011 and 2012.

We are currently marinating our long-term Neutral recommendation with a Zacks #3 Rank (Hold).

 
FRANCE TELE-ADR (FTE): Free Stock Analysis Report
 
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