Orange to Divest Uganda Unit - Analyst Blog

By Zacks Equity Research,

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Couple of months after Orange ( ORAN ) announced its plans to either reduce its stake or sell its Kenyan and Ugandan operations, the French telecom incumbent has agreed to sell its Ugandan subsidiary to Lebanon-based Africell Holdings. However, the value of the deal, which is subject to regulatory approvals, remains unknown.

Orange failed to make a solid impression in Uganda since its introduction in 2008 as the market continues to be dominated by South Africa's MTN and India's Airtel. The French giant launched 2G and 3G services in 2009 but has only 620,000 customers currently.

The Ugandan telecom market is very competitive. Subscribers prefer lower tariff over better network quality, which has led to the success of MTN and Airtel in the region. Orange Uganda, which created a niche for itself with its best-in-class data network, has faced customer churn owing to its higher tariffs. Further, the advent of Smile Telecom in Uganda, with superfast internet speed, has heightened Orange's competition in the data market.

The asset sale is believed to be a part of the strategy earlier adopted by Orange to reduce its non-core assets and concentrate on the central ones. In April 2014, the company divested its operations in Dominican Republic to Luxembourg-based Altice for $1.4 billion.

Meanwhile, Africell has steered ahead of other South African players like MTN and Vodacom in its attempt to take over Orange Uganda. This deal, when completed, will make Uganda the fourth operational market for Africell. Africell already has operations in Sierra Leone, Gambia and the Republic of Congo, with a subscriber base of 9 million.

Uganda provides expansion opportunity for Africell as the country has a mobile penetration of 50%, indicating a significant market share, which still needs to be captured. If the company can repeat its Sierra Leone and Gambia success story in the Ugandan market as well, then we expect Africell to easily achieve its 11 million subscriber target by 2014 year-end.

As far as Orange is concerned, the closure of the deal will shrink its operational base in Africa, which remains an important market for the company as it faces stiff competition in key European markets.

Orange currently carries a Zacks Rank #4 (Sell). Other stocks worth considering within this sector are Level 3 Communications Inc. ( LVLT ) Kyocera Corp. ( KYO ) and KT Corp. ( KT ). Level 3 currently sports a Zacks Rank #1 (Strong Buy), while KYO and KT Corp carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: KT , KYO , LVLT , ORAN

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