Morningstar | Bouygues Reported Mixed 2018 Results, with Strong Revenue, but Weak Margins; Shares Undervalued
Bouygues reported mixed 2018 results with strong revenue growth of 8%, including acquisitions and favourable currency movements. On a like-for-like basis, revenue improved 3%, which was still ahead of our 2.4% projection. However, the strong revenue growth was partially offset by weaker EBITDA, as its EBITDA margin was just 8.8% versus our projection of 9%. We also expect a big increase to 10% in 2019 due to some project problems in 2018 that we don’t expect to be repeated. The rest of the revenue improvement we expect to be offset by higher debt taken on to fund the acquisitions. Thus, we don’t expect any material changes to our EUR 45 per share fair value estimate. We continue to view the company as having no moat and its stock to be undervalued.The core construction business, and the Colas division shook off the third quarter announcement of problems on three projects and generated revenue growth of 6% and 12.7%, respectively. However, the Immobilier division continued to struggle with revenue down 4.4%. We expect more moderate growth in 2019 in the low-single digits in each segment. TF1 also had a strong year due to some acquisitions with revenue up 7.3%. Its main TV station continues to slowly increase its share of women under 50 watching TV that tend to be the main spenders in France. While we are pleased to see this trend, we don’t believe it will be sufficient to continue to grow its revenue at that rate.
Finally, we were pleased to see Bouygues Telecom perform so well. Revenue at the division grew 5.6% as it increased its wireless subscriber base 13.6% during the year to 16.4 million. This was the fastest in the country, but we don’t believe it is sustainable. Iliad particularly struggled during 2018 and we expect it will be more aggressive in 2019. Bouygues also more than doubled the number of fibre subscribers, but off of a small base, reaching 569,000. We expect continued subscriber and revenue growth, but at a slower rate in 2019.
Bouygues is a global industrial group engaged in designing, building and operating structures in public and private buildings, transportation infrastructure and energy and communication networks. Co. operates in three sectors - Construction (Bouygues Construction, Bouygues Immobilier and Colas), Media (TF1) and Telecom (Bouygues Telecom). Construction is engaged in the design and maintenance of projects in the areas of building, civil works, energies and services; Media offers activities covering the audiovisual sector; and Telecom offers mobile broadband services and prepaid card services for smart phones, as well as a range of services including telemessaging, voice mail and WAP
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