Here's Why Orange SA Is Advancing in Africa at Top Speed

By Anders

French telecom giant Orange reported third-quarter results before the opening bell on Thursday. Shares rose as much as 7.2% on the news, and you can take that as a spoiler on the quality of Orange's report.

Orange results: The raw numbersBefore we dive in, keep in mind that the dollar has been racing skyward in recent months, and Orange reports results from a European home base. So these figures have been converted from euros to U.S. dollars at current spot rates at the end of each reported period. This works out to a 12.2% currency headwind, which you can add back to the given year-over-year changes for a truer picture of Orange's local business operations.

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Data source: Orange.

What happened with Orange this quarter?

  • Thanks to a combination of organic growth and strategic buyouts, Orange grew its global customer base by 4.6% year over year. The Orange Group now serves 263 million customers on three continents.
  • After losing market share to hungry upstarts such as the aptly named Free in recent years, Orange has now stabilized its customer counts in the home market.
  • The majority of Orange's growth these days comes from its expansion efforts in the Middle East and Africa, where revenues grew 7% year over year in the third quarter. Orange now counts 111 million mobile customers across these markets. Egypt and the Ivory Coast were particular standouts.

The company is not into issuing revenue and earnings guidance. Instead, Orange keeps investors up to date with annual trends for a slightly different set of data points.

  • In fiscal year 2015, Orange now expects to deliver EBITDA profits of at least 12.3 billion euros, or $13.7 billion at today's exchange rates. That's up 2.5% from the guidance given three months ago, pointing to 12.0 billion euros, or $13.3 billion.
  • Net debt is expected to hover near two times trailing EBITDA profits during the next couple of years. Today, that ratio stands at roughly 2.1.

Orange's service areas paint a large footprint in Africa. Source: Orange.

What management had to say The African revenue growth is paired with excellent profit margins, as deputy CEO Ramon Fernandez explained on a conference call with analysts:

"The average profitability of our African operations is higher than the average of the Group, roughly a bit more around than let's say, 3 points above the average of the group," Fernandez said. "So this is for us very important, we now have around 12% of group revenues in Africa and the Middle East."

That's a large and rapidly growing revenue base, coupled with very strong profit margins. If you were wondering why Orange is so interested in African markets, I think you're getting the picture by now.

By the way, this is a unifying factor between the two telecom stocks in my own portfolio. One is Orange, largely as a play on this massive international growth opportunity. The other is cell tower management veteran American Tower , which runs more than10,000 cell sites in Uganda, South Africa, Nigeria, and Ghana today. That's 10% of American Tower's cell-site assets, positioned in high-growth markets where peers like Orange are reporting excellent profit margins.

I'm deeply invested in the long-term growth of African mobile communications. Thanks to Orange and American Tower, it's a no-brainer.

Looking ahead Orange is stabilizing after a handful of rough years, and turning a greedy eye to rapid international expansion. These efforts are paying dividends on the income statement today, and the real runway may still lie ahead.

Fernandez told analysts that 2015 probably was the low point in Orange's long-term EBITDA results. "In 2016, we will have a performance regarding EBITDA which will be higher than 2015," he said, as if this should be obvious to everyone in the room.

The article Here's Why Orange SA Is Advancing in Africa at Top Speed originally appeared on

Anders Bylund owns shares of American Tower and Orange (ADR). The Motley Fool owns shares of and recommends American Tower. The Motley Fool has the following options: long January 2017 $80 calls on American Tower. The Motley Fool recommends Orange (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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