Morningstar | Bouygues Reports Strong 1Q Revenue and Seasonally Weak Margins; Shares Undervalued
Bouygues reported strong first-quarter results. However, because of the seasonal nature of the construction business, the first quarter isn’t as important as the second and third quarters. Thus, we don’t anticipate any significant changes to our EUR 45 fair value estimate. We continue to believe that the company has no moat and the shares are undervalued.Reported revenue jumped 16% year over year as the firm benefitted from acquisitions and positive currency movements. The construction businesses' sales increased 17%, which also benefitted from a milder winter that allowed for more work to be completed than in the year-ago period. Lapping the acquisition of Miller McAsphalt in the second quarter and other acquisitions in the third quarter, as well as the divestiture of Colas’ Smac division in this year's second quarter and weakness in the French residential property market, should reduce Bouygues' revenue growth rate for the rest of the year. However, once again the construction businesses reached a record-high backlog of EUR 34.4 billion, which provides good visibility for the next couple of years.
Bouygues Telecom reported the best results of the four French telecom operators, with revenue growth of 13% thanks to good handset sales. Service revenue increased 6%, a bit faster than our 5% full-year estimate. The firm added 94,000 fibre-based broadband customers and 149,000 wireless subscribers, not counting machine-to-machine connections. We expect Bouygues will outperform the sector throughout the year.
The Colas division always generates losses during the first quarter, so the firm’s EBITDA margin isn’t comparable to the rest of the year. For the quarter, Bouygues’ EBITDA excluding leases was 4.5%. For the full year, we project its EBITDA margin will be 9.6%.
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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