Bouygues Earnings: Backlog and Sales Up Midsingle Digits; Profit Fares Well

Bouygues’ EN first-quarter results showed healthy demand, with sales increasing 4% on an organic basis. The backlog increased 6% organically to EUR 29.4 billion, driven by higher backlog at the construction and colas divisions, which was offset by a 20% decline in Bouygues’ residential business. Order intake in construction is doing well, with Bouygues booking in several sizable contracts, such as the Abidjan metro project (EUR 770 million) and a hospital in the U.K (EUR 330 million). In the residential segments things remain cooler, given the high interest rate environment has put on hold many residential projects. Management also commented its managing to pass through cost increases to its customers. EBIT fared well, mainly aided by Equans and the telecom division, setting a good start of the year for Bouygues. We are maintaining our EUR 32 fair value estimate, with shares being fairly valued at the moment.

The telecommunications business saw service revenue growing by 4% year over year thanks to slight customer gains and price increases. However, we believe it will be difficult for telecom providers to raise prices in France, given Iliad recently committed to not do CPI-linked price increases, with their prices having remained stable for several years now. Telecom EBITDAaL margin was 27.3% for the quarter, up 200 basis points year on year but insufficient, in our view, to earn above-WACC returns on invested capital.