The Q3 numbers of Bouygues are a first test for my Bouygues investment case.
If I update my simple sum of part valuation, we can see the following:
Market values listed companies:
So the listed subs have slightly increased in value.
Now looking at the unlisted, I will simply assume 9 Month EBITDA will equal 75% of total EBITDA:
||9 month EBITDA
|Bouygues Real estate
Compared to the 6 month numbers I used last time, Telco is slightly below 6M run rates, construction and real estate perfom better.
Both, listed and unlisted subsidiaries in theory look better than at the time of my initial analysis. Net debt has slightly increased to 5.8 bn form 5 bn, mainly due to a 2 bn purchase of mobile licenses in France.
Putting this together, the updated fair value of Bouygues equity at “sum of parts” would be 6,65 bn + 12.075 bn -5.8 bn = 10.9 bn or around 35 EUR per share. From my point of view I see no fundamental reason why the shares have dropped quite substantially. I guess this is more “market psychology” following the announcement of France Telecom to cut their dividend.
However the stock chart looks really ugly now, although I am not a stock chart expert, there doesn’t seem to be any “technical” support on the downside and momentum is clearly negative:
Fundamentally the company seems to be “on track” at least compared to my investment case. So I will use today’s low prices to “fill up” again the current 2.2% position to 2.5% weight, further purchases will follow if the stock goes below 17 EUR (and fundamentals remain stable).
So to conclude my “Bouygues week”, a final post about the company.
In my recent post about Bouygues, a commentator said if I can’t correctly project future profitability levels for the French mobile phone market, then investing into Bouygues is not a good idea.
As I call myself a fundamental investor, I have to admit that I do not have any extra knowledge about the french mobile market at the moment.
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.
After looking at one of the main subsidiaries Colas in the last post, let’s have a quick look back at Bouygues, the holding company itself.
Sum of part valuation
As I have mentioned in the initial post, Bouygues has 3 listed subsidiaries, Colas, TF1 and Alstom as well as 3 unlisted major subs which are Bouygues Construction, Bouygues real estate and Bouygues Telecom.
To get a feeling for a “sum of parts” valuation, we should start with the listed subs and then make assumption for the unlisted ones.