Ticker: Bouygues (BOUYF)
Share: 350 million
Cap: €7.7 billion
Net Cash: -€3.8 billion
EV: €11.5 billion
FCF: €814 million
HistoryThe following is a timeline of Bouygues (BOUYF).
1952 Founded by Francis Bouygues as a company specializing in industrial work and construction.
1970 Listed on Paris Stock Exchange.
1974 Built Fiat Tower in La Defense, Paris and the Paris convention center.
1981 Construction complete for Charles De Gaulle Airport Terminal 2.
1983 Bubiyan Bridge in Kuwait and Inset University in Ivory Coast.
1984 Acquires ETDE, specializing in energy supply and transmission. Also acquired Saur, France’s third largest water supply company which was sold to PAI partners in 2005.
1987 Acquisition of TF1 Group. Bouygues owns 43.6% of TF1 Group.
1989 Delivery of Arch de la Defense.
1994 Gains license to operate a mobile network.
1996 Commercial launch of Bouygues Telecom.
2006 Bouygues acquires 21% of Alstom. Now owns 30.7% of the company.
The GroupThe Bouygues Group owns various other companies and can be thought of as a holding company. Bouygues Construction, B/CW, is active in public works, electricity and maintenance, Bouygues Immobilier in real estate development, Colas in roadworks, Telecom in mobile phone network, TF1 in television station, and Alstom in the manufacturing of trains.
Each of the businesses is not very difficult to understand.
Sales have increased at a growth rate of 5% compounded in the last 10 years.
The profit in the same time has grown at 12%.
The profit and operating margins of the group have remained relatively stable in the last 10 years.
The company’s dividend has stagnated since 2008 but still yields 7.2% at current prices. The dividend is well covered and a 53% payout means that when the current downturn in the market is over, Bouygues will be able to hike dividends.
SCDM is a simplified limited company controlled by Martin Bouygues and Olivier Bouygues. This figure includes shares owned directly by Martin Bouygues and Olivier Bouygues. In 2010, SCDM held only 18% of the group, so the insiders have been accumulating shares.
In the last 10 years the share count has remained in the range of 346 - 355 million and currently stands at 350 million. Bouygues buys and sells treasury shares to finance immediate operations and this explains some of the vacillation.
ManagementMartin Bouygues from the founding family is the current chairman and CEO of the company. He with Olivier Bouygues holds nearly 21% of the company and has been buying share in the last year (up from 28% in 2010).
Martin started with the company in 1974 and was made CEO in September 1989.
The total compensation of the Board of Directors of Bouygues and its subsidiaries was less than €1 million in 2011.
The two brothers Olivier and Martin got around €5 million between them.
|Item||Dec 31, 2011 (in € million)|
|Long term debt||6,807|
Following is the debt profile of Bouygues. The last bar is worth €3,181 million and is due in 2018 or later. Given the operating income of €1,819 million, Bouygues can pay the debt when it is due. It also has options to roll over.
Given that the interest cover is more than 6 and the debt profile is not very steep, the Bouygues balance sheet is quite strong.
ValuationWe will do a sum-by-part analysis of Bouygues.
|Item||Value||Ownership||Value (in € billion)|
|TF1 Group||€1.85 billion||43.6%||0.87|
|LT Debt||€6.8 billion||-6.8|
|Current debt||€216 million||-0.2|
Bouygues also holds following unlisted companies.
|Bouygues Telecom||89.5%||€5.6 billion||€320 million|
Colas has revenue of €12 billion, on the other hand, the revenue from construction, property and roads (from Segment information, Bouygues Annual Report 2011) is €24 billion. Hence, at least €12 billion is coming from construction, or Immobilier. As Bina Istra is a minority interest, it does not appear in the income statement. Given that Colas had €315 million in income and the total income from these segments was €692 million, we arrive at 377 million more in income for construction and the Immobilier group. Even at 10 times income this is worth an additional €3.7 billion.
This gives us a conservative valuation of €8.1 billion. The company sells for €7 billion and hence a very conservative valuation still gives a 16% upside.
RisksEurope is not a growth market by a long shot. Given that Bouygues derives 69% of it sales in France and nearly 83% of sales from Europe, the situation is not very good. The share price itself is suffering from two factors - weakness in Europe and competition in Bouygues Telecom operations.
Most of Bouygues business depends on getting new projects which need a lot of capital to finish. A business model based on getting and working on new projects is not ideal. Furthermore, problems and delays in projects will affect the company negatively.
Some of the industries in which Bouygues operates are regulated, and because 69% of sales comes from France, the risk is magnified. Changes in law and regulations may affect the business adversely.
The data is taken from Morningstar, GuruFocus, and Bouygues annual report for 2012 and fact sheet. The graphs have been either taken from fact sheet or made by me in Google docs.
I plan to buy Bouygues below €20 if the price drops. I may start a small position at current prices.