A few more thoughts on Bouygues (Telecom) – O2 IPO
After my buy decision two days ago, the share price jumped immeadiately 3%, but this was not the result of my blog but of some interesting news from the French Government, which was interpreted as positive for Bouygues Telecom.
The French Government seemed to have clarified that Illiad SA wil not be able to rely on cheap roaming contracts forever, but has to build out their own network rather sooner than later.
Another, in my opinion even more interesting story is the currently planned IPO of Telefonica’s German mobile business O2. According to the FTD (German), Telefonica is looking for an EV/EBITDA multiple of 6.5-7.
One has to keep in mind that this is only the number 4 operator in Germany and they are offering a minority stake only.
So I would say my 6.5x EV/EBITDA for Bouygues is not that far off from reality.
What I found even more interesting is the fact that at least in the second quarter, O2 managed to earn 333 mn EBITDA based on 789 mn EUR sales. This is an EBITDA margin of 42% against ~20% for Bouygues. This is really interestign becaues for me it shows the potentail for Bouygues if O2 manages to earn such margins in such a tough market as Germany which has already 4 carriers.
I will have to reread Bruce Greenwalds “Competition demystified”, but I am pretty sure that if at some point in time Iliad has etsablished itself, there is a good chance that margins might “mean revert”.
In any case, if the IPO goes through, O2 will be a very good comparable for Bouygues, much better than Vodafone or France Telecom.