Morningstar | Despite Last Year's Profit Warning, Bouygues Is Holding Up Well
Bouygues is one of the largest engineering and construction companies in Europe and owns the third-largest wireless phone business in France. The phone business historically provided consistent returns to help even out the E&C business' volatility, but the construction business has been more consistent this decade.After several strong years, the recession brought increased pricing pressure into the market with lower margins. The E&C business continues to add orders, keeping its backlog near record levels, particularly in the core construction business. Recent strength in France and much of Europe is providing an opportunity to slightly improve margins from new projects. There is solid revenue visibility due to the length of many of these contracts.Besides the E&C business, Bouygues also owns TF1 and Bouygues Telecom. TF1 owns the largest terrestrial television channel in France. Television remains an important method of reaching broad audiences with advertising. In third quarter 2017, the firm's various channels continue to account for about 32% of women television viewers under age 50, which are the prime purchasing decision-makers. This viewership is helping the firm hold its advertising share, but advertising has declined due to advertisers moving to the Internet--a trend we expect to continue. Bouygues Telecom is the third-largest wireless phone company in France. In January 2012, Iliad launched service as a fourth wireless operator with more aggressive prices than we expected, changing the competitive landscape. The French wireless market is now one of the most competitive in Europe, which is hurting the existing operators' revenue and margins. Bouygues' was hurt the worst due to its smaller scale. However, in 2015, the division saw revenue growth for the first time since Iliad's entrance, as reduced prices have now been absorbed. The telecom recovery has continued with Bouygues being one of the biggest beneficiaries. We expect further gains in revenue and margins. Overall, we think Bouygues owns some interesting businesses and provides nice cyclical exposure to a rebounding economy (particularly France), but that the firm does not have a moat.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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