Stock Analysis & Valuation iliad S.A. (ILD.PA)

• Previous Close: €182.00
• Sector Valuation Confidence Level: High

Valuation method	Value, €	Upside, %
Artificial intelligence (AI)	n/a	n/a
Intrinsic value (DCF)		n/a
Graham-Dodd Method	41.22	-77
Graham Formula	100.72	-45

Strategic Investment Analysis

Company Overview

iliad S.A. is a leading telecommunications provider in France and Italy, offering integrated fixed and mobile services under the Free brand. Founded in 1999 and headquartered in Paris, France, iliad has revolutionized the telecom market with its disruptive pricing strategies and innovative services. The company provides VoIP, IPTV, and flat-rate calling plans, along with its flagship Freebox multiservice box on ADSL. As of March 2020, iliad boasted 20 million subscribers in France and 5.8 million in Italy, solidifying its position as a key player in the European telecom sector. Operating in the highly competitive Communication Services industry, iliad is known for its cost-efficient business model and customer-centric approach, making it a formidable competitor against established telecom giants. The company's expansion into Italy further underscores its growth ambitions in the European market.

Investment Summary

iliad S.A. presents an intriguing investment opportunity due to its strong market position in France and growing footprint in Italy. The company's disruptive pricing and innovative service offerings have allowed it to capture significant market share, evidenced by its 25.8 million subscribers. Financially, iliad reported revenue of €5.87 billion and net income of €334 million in FY 2020, with a diluted EPS of €5.63. However, investors should note the company's high total debt of €11.87 billion, which could pose risks in a rising interest rate environment. The telecom sector's competitive nature and regulatory pressures also present challenges. Nonetheless, iliad's strong operating cash flow of €2.11 billion and its ability to maintain profitability in a saturated market highlight its operational efficiency. The dividend payout of €14.63 per share adds to its attractiveness for income-focused investors.

Competitive Analysis

iliad S.A. has carved out a niche in the European telecom market by leveraging its low-cost, high-value proposition. Its competitive advantage lies in its ability to undercut larger rivals like Orange and Telecom Italia on price while maintaining service quality. The company's Freebox multiservice offering is a key differentiator, bundling internet, TV, and phone services into a single, cost-effective package. iliad's lean operational structure allows it to operate with lower overheads compared to incumbents, enabling aggressive pricing strategies. However, its reliance on wholesale agreements for network access (particularly in Italy) exposes it to regulatory and pricing risks. In France, iliad benefits from its own infrastructure, reducing dependency on competitors. The company's expansion into Italy has been promising but faces stiff competition from entrenched players. While iliad's subscriber growth is impressive, its ability to sustain profitability amid intense price competition and high capital expenditures (€2.02 billion in FY 2020) remains a critical factor for long-term success. Its beta of 0.28 suggests lower volatility compared to the broader market, appealing to risk-averse investors.

Major Competitors

• Orange S.A. (ORA.PA): Orange is the largest telecom operator in France, with a strong presence across Europe and Africa. It boasts extensive infrastructure, including fiber and mobile networks, giving it a cost advantage over iliad in service delivery. However, Orange's higher pricing and slower innovation compared to iliad have led to customer attrition in the budget segment. Its scale and diversification provide stability but limit agility in responding to disruptive competitors like iliad.
• Telecom Italia S.p.A. (TIT.MI): Telecom Italia dominates the Italian market, where iliad is expanding. It has a robust fixed-line and mobile infrastructure but struggles with high debt and operational inefficiencies. Telecom Italia's slower adoption of competitive pricing has allowed iliad to gain market share rapidly. However, its brand loyalty and extensive network coverage in Italy pose challenges to iliad's growth ambitions.
• Bouygues Telecom (BOUY.PA): Bouygues Telecom is a key competitor in France, offering similar bundled services. It has invested heavily in 4G and fiber, competing directly with iliad's Freebox. Bouygues' stronger financial position allows for aggressive marketing, but its higher cost structure limits pricing flexibility. Unlike iliad, it lacks a significant international presence, focusing solely on the French market.
• Vodafone Group Plc (VOD.L): Vodafone operates in multiple European markets, including Italy, where it competes with iliad. Its global scale and strong brand are advantages, but its complex organizational structure leads to higher costs. Vodafone's focus on enterprise customers differentiates it from iliad's consumer-centric model. In Italy, Vodafone has struggled to match iliad's low-cost offerings, losing market share.