PARIS -(Dow Jones)- France Telecom may have to cut its medium-term revenue guidance, not because its growth strategy is flawed, but because its guidance is out of line with expectations.
The company has said it aims to grow an average of 3% to 5% annually from 2006 to 2008, but analysts see growth of 2% and 2.3% over the next two years, according to the Thomson First Call consensus of 28 estimates and the Thomson Financial consensus of 23 estimates.
The discrepancy between France Telecom's guidance and analysts' estimates is enough to prompt the company to rethink its outlook.
"When you make a (guidance revision) it's because you perceive an incoherence with where you see you will go and where the market sees you will go," France Telecom Chief Financial Officer Michel Combes said Monday in an interview with Dow Jones.
Combes did not say that France Telecom was planning to cut its revenue outlook. He did, however, acknowledge that a lack of credibility in France Telecom's targets has helped reduce the company's stock price.
France Telecom's challenges are shared by most European incumbent telecom operators. Regulators are pushing greater competition.
Fixed-line rivals and voice-over-Internet companies like Skype Technologies SA are putting pressure on Internet and phone prices. And mobile high-speed Internet services aren't generating as much revenue per user as hoped.
The company would have to be exceptional in executing its strategy to reach even the low end of its revenue goals, analysts said.
"You're looking at some really positive move at (mobile unit) Orange or in the (operations outside western Europe) that's exceptionally high" for them to achieve the growth they've forecast, said Raj Sinha, an analyst with JP Morgan in London.
"Or their fixed-line products (would have to) defy the trend in the rest of Europe," said Sinha, who rates the stock neutral.
Combes said that the company's transition to higher-powered, lower-cost Internet Protocol networks are increasing pressure in the short term.
In October, the company cut its 2005 revenue growth forecast to "nearly 3%". Shares have fallen 17% since their 2005 highs in August and 7% on the year. Shares closed down 0.1%, or EUR0.03, to EUR21.75.
Combes said that the company's plan to package fixed and mobile phone services should improve customer loyalty and expand revenue in the midterm.
Analysts say they're persuaded by this approach, but 3% to 5% annual growth is overly ambitious.
If France Telecom were to grow 3% a year through 2008, it would outperform the rest of the European telecoms sector by as much as 1 percentage point, analysts at SG say.
"It is unlikely that France Telecom, given its positioning, will be able to materially outperform the sector," the SG analysts said in a note published Thursday.
"From a financial communication point of view, the company has been reviewing in detail analyst revenue estimates ... with a view to adopting a more conservative approach" to its guidance.
"The likelihood of a negative revision is weighing on the stock," said the SG analysts, who recommend buying France Telecom shares.
-By Brian Lagrotteria, Dow Jones Newswires; +33 (0)1 40 17 17 55; brian.lagrotteria@dowjones.com
(END) Dow Jones Newswires "
Posted to the site on 24th November 2005
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