Orange S.A.

The stable outlook on Orange reflects our anticipation of the company's resilient performance in France over the next 12 months, despite our conservative forecast for weaker French and Spanish markets arising from recessionary headwinds, and ongoing competitive pressure. We assume a low single-digit revenue decline in 2020, largely offset by reduced capex and dividends in terms of cash flow, followed by flat-to-slight growth in 2021. We expect Orange will maintain credit metrics in line with our 'BBB+' rating, with adjusted debt to EBITDA of 2.8x-2.9x over the next two years, funds from operations (FFO) to debt near 30%, and FOCF to debt before spectrum costs approaching 10%. We could take a negative rating action if adjusted leverage rises sustainably and

...We think operations will remain stable through the immediate effects of the COVID-19 pandemic. Network utilization has been up strongly during lockdown, with fixed traffic up 40% in Orange's French home market. This supports demand and revenue resilience among consumers and larger enterprises needing additional remote working capacity. The primary negative impact should come from temporary or permanent closure of small and midsize enterprises (SMEs) within the business-to-business (B2B) segment, as such customers may face less ability to absorb the business interruption from quarantine measures. We also expect a topline hit to equipment sales (which accounted for 15% of 2019 revenue) due to retail closures. In our forecast, the 15.2% drop already recorded in Q1 will expand to a 25% drop for the whole of 2020, accounting for the full effects of lockdown set in. That said, the low net margin on equipment should not translate to material earnings deterioration. And while the company has not...

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