Business World

Saturday 17 March 2018

The French have a word for it...and it's often 'Non'


John Lynch

Readers of this column will know I'm a keen follower of French industrial policy, which can be summarised in a sentence: 'If the outcome can be seen as damaging to French interests, it cannot happen - and stuff the begrudgers.'

It's simple but effective and there was an example recently where Altrice, a Dutch-quoted company, bid for the mobile unit of Bouygues, the French construction and communications conglomerate. If successful, it would have created the largest telecom business in France.

The French economics minister, Emmanuel Macron, had other ideas. He declared that the bid should not go ahead as it was bad for consumers, bad for employment and bad for investment and he would put a stop to it.

Bouygues rejected the offer despite analysts' claims that the price was good and that Bouygues' mobile business, due to a raging price war, was losing money. Part of the 'back-story' was that Altrice had earlier outbid Bouygues for Vivendi's mobile business, the second largest in France.

While the story speaks volumes about the way the French protect their own, the target company, Bouygues, is itself an interesting firm.

The telecom business is only one part of the group. It was initially set up as a construction company in the 1950s and over time diversified into telecoms and TV businesses. I should put on record that I don't like investing in unrelated diversified companies and Bouygues is such a business.

Today, the company has sales of €33bn, 127,000 employees (70,000 in France), operates in 100 countries, has a market value of €10bn, and has been listed on the Paris Stock Exchange for 25 years.

Its construction unit is involved in roads, motorways, railways, buildings, bridges and concessions like toll roads. The unit consists of Bouygues Construction (civil works), Colas (roads) and Bouygues Immobilier (property). Colas, acquired in the mid-1980s, is a worldwide leader in roads and operates in 50 countries.

In recent times, it had branched beyond road construction and maintenance into complementary activities like road marking, signalling, and safety. The property business develops residential, office and retail projects of which one third is commercial and the remainder residential. The construction unit revenue last year reported sales of €27bn (half in France) and operating profits of €840m, up 2pc, driven by the growth in international markets from South Africa to Morocco and Canada to Qatar.

Bouygues Telecoms, the subject of the takeover bid, is the third largest mobile operator in France. Last year, it had revenues of €4.4bn but lost €65m due to the continuing price war, initiated by Iliad, a low cost operator. Bouygues is also the leading free-to-view television operator in France. It has four channels; its main one, TF1, is the market leader. While it was voted the favourite channel in France last year, it didn't help its sales, which fell 9pc to €2.2bn, or its operating profits, retreating by 36pc.

Group sales last year were flat at €33bn, with operating profits declining slightly to €1.1bn. Profitability, particularly in construction, remains solid despite 'challenging conditions'. The price war in its telecom unit continues and its TV revenues and profits are under pressure. However, the company is in a sound financial position, helped by a firm hand on its capital expenditure and capital gains from the sales of its interest in Eurosport and other assets including its stake in Alstrom.

The share price today is in the low €30s, below its five-year record of €39 earlier this year. The price-to-earnings multiple is a reasonable 14 and a dividend yield is 4.7.

The shareholding structure helps the company adopt a long-term approach. The eponymous founders' family holds 27pc of the voting rights, and employees 30pc. With the new shareholders voting laws in France due for implementation next year, Bouygues will not be an easy takeover target. However, as mentioned earlier, I'm not mad about investing in firms with a structure featuring unrelated diversification.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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