Bouygues EN (XPAR: EN)
Last Price: EUR31.97| Fair Value: EUR35.00
Business Strategy & Outlook:
Bouygues is a conglomerate with a disparate number of businesses. In its construction segment Bouygues develops big infrastructure projects such as motorways, rails, power plants, and tunnels, among other things. Despite having small margins, the construction business is usually more resilient to the cycle as infrastructure spending tends to be less affected by recessions than residential construction. Bouygues’ cost structure is highly variable so when difficult times come it can adjust its cost base rapidly (although this also prevents it from benefiting from operating leverage in times of high demand). Both Bouygues Construction and Inmobilier (residential construction) have high exposure to France, as a significant portion of their business comes from there. olas, which provides raw materials like asphalt and concrete for road construction, is also relatively stable during the cycle as it is exposed infrastructure investment. In 2018 Colas increased its exposure to North America by acquiring Miller McAsphalt, engaged in road construction and bitumen distribution in Canada.
Bouygues is also the owner of TF1 and Bouygues Telecom. TF1 is one of the main media groups in France and owns several TV channels. As traditional TV advertising is in continuous decline, TF1 set up Unify in 2016, which encompasses several web pages in France that earn money through advertising. Bouygues Telecom is one of the main four telecom operators in France, with traditionally a larger presence in the mobile market, though it has been catching up in broadband in recent years. Bouygues Telecom’s business struggled in the first half of the 2010s as competitor Iliad launched Free, its mobile service. Bouygues saw its telecom EBITDA margins decline sharply as its main exposure was in the mobile segment. Since 2015, Bouygues Telecom turned around by expanding its presence and gaining market share in the fixed market, which has increased its margins, making it a more resilient player.
Financial Strengths:
As of December 2021 Bouygues had around EUR 600 million in net debt, which represents a 0.2 times net debt (excluding leases) to trailing EBITDA ratio.Bouygues keeps low levels of leverage given its cyclical nature and small profit margins in many divisions. Bouygues has approximately EUR 3.7 billion in gross debt maturing in the next five years, however, maturities are evenly spread and it is not expected that the company will have any problem in repaying or refinancing its obligations. After the acquisition of Equans, which is expected to be completed in the second half of 2022, it is estimated that net debt/EBITDA could increase from around 0.2 times to the 1.0-1.5 times range. Although net debt should still be in a manageable range going forward, Bouygues’ conservatively managed balance sheet given & the cyclical nature of the business, shows some deleveraging is likely after the deal completion, which is expected in the second half of 2022
Bulls Say:
Company Description:
Bouygues is a French conglomerate made up of a disparate range of assets: a construction business, a TV business, and a telecom business. It is one of the biggest construction companies in France and Europe with construction sales of around EUR 25 billion-EUR 30 billion and one of the four telecom operators in France, with both mobile and fixed operations and EUR 6 billion in revenue. It is also the owner of TF1, one of the main media and TV companies in France.
(Source: Morning Star)
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