A few more thoughts on Bouygues (Telecom) – O2 IPO

Recent news
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.


  • Now it’s 5.4-6.5 ev/ebitda for Ipo and this for a minority stake.

  • Your problem isn’t the multiple you are paying, it is the EBITDA you are capitalizing. The French market has been totally destabilized by new entrants. You need to figure out what pricing is sustainable for that industry, what that implies for EBITDA, and then capitalize that at some multiple. Historically the industry priced like an oligopoly – either you need to believe that the oligopoly will return and pricing will mean revert, or show what new entrant pricing has to be for illiad to earn a CoC return on an investment in their own network.

    If you can’t answer that than its not a good idea. Maybe you can’t. I’d guess you can’t.

    • Dear J,

      thanks for the comment. Yes, you are right. I do not know for sure if margins in the Franch mobile phone sector mean revert or not.

      I have used 6m 2012 EBITDA to “capitalize” the EV. This is around 2-3% ROA. So I could now go into deep detail and look at Illiad or I can try to make an assumption that it will not get worse going forward.

      So my valuation is current status quo, and based on this you still get the mobile business for free. If the status quo can be maintained, Bouygues is undervalued, if the mobile business recovers, Bouygues is strongly undervalued.

      If the mobile business is collapsing, Bouygues is fairly valued.

      So at least with my investment approach, I do not need to estimate the future as I don’t pay for the future.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.