Orange, the 1=1+1 Theory?
16 November 2021
[Restricted to an informed audience: we're going to do sums] 🤓
You probably know the 1+1=3 theory.
One company merges with another, the new group pools its costs and thus its total value becomes greater. This theory has supported the formation of conglomerates for decades.
But are you familiar with the 1=1+1 theory?
For some years now, investors have preferred “ pure players ” to conglomerates: more visibility on the business, more investment in high value-added sectors, etc.
The major groups have therefore decided to separate their activities. The objective? To create shareholder value. Let's take the example of Orange, one of our largest holdings at Monocle (9% of the fund).
Orange today is :
- €26bn market capitalization ;
- €12 Bn of EBITDA (EBITDA is a kind of operating profit);
- Conclusion: Orange is worth 2.2x its EBITDA.
Orange tomorrow:
The group has just announced the operational launch of TOTEM, the separate company it created to separate its network infrastructure business - to give you an idea it's 26,000 towers and rooftops on which Orange antennas are installed.
At the time of this article, TOTEM has :
- €500 M of annual turnover ;
- €300 M of EBITDA.
This is where it gets interesting : TOTEM is part of a very attractive business sector. As an example, Cellnext - the sector champion - has a market capitalization equal to 20x its EBITDA.
So Orange, after revaluing TOTEM, is worth :
- €6 Bn with TOTEM (EBITDA x20)
- And €25.7 Bn for the rest - remember the rest of the group is worth 2.2x its EBITDA: €25.7 Bn.
Conclusion: if the market appreciates TOTEM as much as Cellnext, the new Orange could be worth nearly €32 billion.
Nearly €6 billion more than before the operation.
This is how 1 can be worth 1+1. So on the side of Orange shareholders, we are impatiently waiting for the next step.
Have a great week,
Pierre
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