Morningstar | Bouygues Reports Generally In-Line First-Half Results; Shares Slightly Undervalued
Bouygues reported first-half results that were generally in line with our expectations, and we are maintaining our EUR 45 per share fair value estimate and no-moat rating. Reported revenue increased 4% year over year versus our full-year projection of a gain of 2.4%. However, the first half isn’t very indicative of the whole year due to seasonality in the Colas division, which typically has a very weak first quarter. This is reflected to an even greater extent on the margin side, where Bouygues’ EBITDA margin was 5.9%, well below our full-year projection of 9.6%. However, we expect revenue growth and EBITDA margin to be close to our full-year projections and believe the stock is slightly undervalued.The construction business grew its revenue 4% and its backlog 9% to EUR 33.7 billion, a new record, which provides good visibility for future revenue growth. The firm saw solid revenue growth from all three divisions, construction, Immobilier, and Colas, and from both France and international operations. With the strong demand, management stated it is able to be pickier about contracts and is focusing more on profitability than sales. This statement isn’t new, and we were pleased to see management apply it during the last downturn, but it is nice to see the chance for improved margins. That said, the construction business remains cyclical and we don’t expect strong markets to last indefinitely. Our slight EBITDA margin increases are driven more from improvements on the telecom side than the construction side.
Bouygues Telecom pushed its EBITDA margin up 1.7 percentage points to 26.5%. It also increased its revenue 7%. The firm had solid subscriber growth on both the wireless (12.1%) and broadband (9.2%) sides. While Iliad hasn’t yet reported, we expect these to be the fastest growth rates in the country. We also project Bouygues to have one of the fastest growth rates in upcoming quarters.
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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