Executing on the game plan, but fully valued – downgrade to EW
Bouygues' 1Q15 result confirmed our view that the Bouygues Telecom turnaround is well underway. We also believe NUM-SFR/Altice’s purchase of Vivendi’s 20% NUM-SFR stake clears the way for potential mobile consolidation. However, despite moving our telco valuation to a 50/50 blend of our €7bn DCF valuation and a €9bn/13x EBITDA target multiple, our new €38/share price target implies no upside potential, and our upside case only c.8% potential upside. With the stock having outperformed the sector by c.10% since February, now trading on 6.5x EV/EBITDA and 4.4% dividend yield, we downgrade to Equal Weight.
Downgrade to Equal Weight: We upgraded Bouygues to OW in our February 9 report, French Telecoms - Focus on fundamentals; still positive. With modest forecast changes in today’s report, we move to a multiple-based valuation for Bouygues Telecom, assuming a 50/50 blend of our €7bn DCF value and a €9bn/13x EBITDA multiple value. Our price target increases to €38/share from €36/share prior, implying zero potential upside. Our upside case of €41/share implies c.8% potential upside and assumes a telco disposal at a €9bn EV. On our new forecasts Bouygues trades on 6.5x 2015E EV/EBITDA, 17.5x OpFCF and with a 4.4% dividend yield. With SoP upside appearing limited we downgrade to Equal Weight.