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Bolloré SA fully consolidates Vivendi and has published unappetising earnings.
The battles waged by Vincent Bolloré in and on the media could almost make investors forget that the group is currently facing problems – or even setbacks – in nearly all of its activities. We have already discussed the strategy (or is it tactics?) relating to Vivendi. Yet, a series of disappointments have occurred over the last few months, and not just in the media sector. Bolloré SA is a family-owned company that is seriously geared (the financials at the Omnium Bolloré level give a clearer picture of the risk attached to the complex legal structure). Still, Bolloré will not raise capital for fear of diluting family control. Being the 7th generation at the helm, Vincent has dynastic priorities. He has already announced that he will be leaving in 2022, for the bicentenary of the family business. His four children work in the group with three as managers. The Bolloré group is currently waging a number of battles with questions about managerial resources (several “historical” managers left the group) as well as financial resources. Bolloré’s objective is to stick to a 40-50% gearing (nominal at Bolloré SA, closer to 100% at the Omnium Bolloré level). As of today, the group has been able to extract slightly less than €800m in dividends from Vivendi for both 2015 and 2016 and has made good use of Vivendi’s rich balance sheet to push for “strategic” acquisitions, but this source is drying up unless Vivendi monetises its ownership of UMG. It all looks like a financial corner in the making. The group is obviously conscious of this. Willing to remain diversified in several sectors, Bolloré has benefited up to now from a degree of phasing in some investments and projects in Africa while the forthcoming investments in electrical storage should be contained. But, in our view, it is unlikely that this could be sufficient.
Once upon a time (say about 6 months ago), Mediaset and Vivendi concluded a splendid strategic alliance: the French group was to acquire 100% of Mediaset Premium, while each entity would be taking a 3.5% stake in the other on the occasion. The ambition was to build a pan-European OTT platform and to create a southern European content and VOD powerhouse… The announced wedding has since moved to the divorce legal battlefield, maybe paving the way for a ménage à trois .
While the economic and financial press makes its headlines over Vivendi, the company’s investments, its takeover bids and the changes of some executive managers within the Vivendi Group and its holdings, only a few people question the good execution of Bolloré’s activities in Africa. In 2014, the transportation and logistics activities represented 53% of Bolloré’s turnover and 87% of the operating result. Africa’s contribution was 42% of the Transport & Logistics’ turnover, that is 22% of the consolidated revenues (the figure is not available for the operating result). For 2015, Transport & Logistics amounted to 56% of the 2015 turnover. We have, for now, no indication about the share of the African continent, only that Bolloré has already warned about the slowdown in mining and petroleum activities in some countries like Nigeria, Gabon, Democratic Republic of Congo, Sierra Leone, Mozambique and Angola. In any case, Africa remains a continent of strategic importance for the Bolloré group. Since October 2014, the chairmanship of Transport & Logistics has belonged to Vincent Bolloré’s son, Cyrille Bolloré. The activity has been reorganised from geographical areas (on one hand, Africa and, on the other, Europa-Asia-America) into four operational divisions: port activities, transport fees, railway operations in Africa, and energy. But all these divisions may involve activities in Africa. Bolloré Africa Logistics (BAL) operates the largest integrated logistics network in Africa, covering 46 countries, employing 24,000 persons and publishing about €2.5bn of revenues. With 250 subsidiaries, the company managed 14 container terminals and around 20 inland container depots in customs warehouses at the end of 2014. In the transit and logistics area, BAL takes care of all customs and administrative procedures, upstream and downstream of transportation by both sea and air on behalf of its clients and deals with the carriage of goods by road or by rail. Within the Bolloré Group, changes are always happening within management. We have already mentioned that an important reshuffling of the teams was conducted inside the transportation and logistics activity (see our Latest dated 28/04/2015). Since then, we have learnt that Dominique Lafont, who headed up the Bolloré Africa Logistics (BAL) subsidiary for a 10-year period until Autumn 2014, has moved to KKR in July 2015, the US equity company, looking to invest in Africa’s infrastructure. The regional manager of BAL in western Africa, Lionel Labarre, is also now going to leave the African activities for Vivendi, having been involved in all of Bolloré’s strategic projects in the Ivory Coast for 16 years …. In addition to the port and logistics businesses, the company is now reinforcing Bolloré’s presence in railway concessions. Requiring major investments (at least €2bn) over several years (about eight), the aim of the project is to open up the hinterland in order to facilitate the export of agricultural and mining resources, increasing the volumes processed by the ports which are managed by Bolloré (Abidjan, Cotonou, Lomé). In connection with the railway projects, the Bolloré Group plans to install Bluezone, inland container depots with handling and storage capacities and optic fibre networks all along the railway.
Even if the H1 15 publication has taught us one thing, it is the magnitude of the investments which are facing Bolloré for the coming years as well as the consequences of them: to find the resources needed to finance these projects and potentially to disentangle the ongoing legal actions in connection with the African concessions. The investments have two major purposes: on one hand, electricity storage with the related businesses and, on the other, the ambitious project planned in Western Africa with the aim of securing Bolloré’s logistics business in African harbours. At 30/06/2015, relatively strong growth in investments (+45% to €112m) was recorded in the electricity storage industry with the progression of car-sharing and developments in the bus and stationary activities. The group continued to sell electric vehicles (Bluecars, Bluebuses, Bluetrams and the Bluesummer, a cabriolet version designed by Bolloré and produced by the PSA-Peugeot Citroën group). A car-sharing service was inaugurated in London in June and the car-sharing service of Indianapolis (USA) was launched in September 2015. Due to be completed by end-2019, the plan to roll out 16,000 charging points across France is expected to get under way before the end of the year (€116m to invest between 2015 and 2018, see our Latest dated 08/09/2014). In H1 15, the battery business, Blue Solutions, was breaking even for the first time, but this was not the case for the whole electricity storage and solutions activity which remained (with no surprise) in losses. Remember that the listed company, Blue Solutions, holds options which are exercisable between September 2016 and June 2018 over almost all the other companies within the scope of the electricity storage and solutions activity. But the current greatest project of the Bolloré group is the construction of a railway loop, which is part of the completion of the building of an integrated logistics network through five countries in Western Africa (see our Latests dated 08/09/2014 and following ones). To boost its logistics flow capacities, the group decided to strengthen its presence in African rail concessions by planning investments to renovate and upgrade the road linking Abidjan (Ivory Coast) to Kaya through Ouagadougou (Burkina Faso), to construct the stretches between Kaya and Niamey (Niger) and to renovate the line to Cotonou (Benin), giving a total of 2,740km of rail to construct or renovate. The group also plans to develop the railway from Cotonou to Lomé (Togo) and then to Nigeria. Bolloré intends to install Bluezone (areas equipped with their own electricity supply), inland container warehouses with handling and storage capacities and a fibre optic network (internet, voice/data) all the way along the railway. Last year, up to €2bn was announced for these investments (€1m per km), to be realised over the next eight years. Furthermore, some developments are expected in Cameroon and Guinea for the renovation of a line which should reduce the congestion from Conakry (Guinea) to the Kagbelen inland container warehouse operated by the group. This is an ambitious project to finance, while the group is already indebted. At 30/06/2015, the consolidated net debt amounted to €4.3bn (compared with €1.8bn at the end of 2014), leading to a gearing of 36% (18% at 31/12/2014). The acquisition of Vivendi shares for €3.6bn (of which only €0.6bn obtained from the sale of 22.5% in Havas) was the reason, Bolloré increasing his holding from 5.1% to 14.4% during the half year in Vivendi, of which 2.5% is hedged. Note that at the end of July, the group completed a 6-year bond issue for €450m with a 2.875% annual coupon, with the aim “to extend the average maturity of its debt”. Having initially been determined that he would finance the African project practically alone without approaching any development bank, Vincent Bolloré said during the analysts’ meeting that he was now looking for industrial partners in Africa. If this does not work, an IPO of the railway activity could be launched - in the next three or four years? But for the next three years, the higher level of operating and financial costs should be more than offset by the dividends already received and expected from Vivendi. Bolloré’s H1 15 net result was already very high, due to €325m of dividends received from Vivendi. With the company not being consolidated as an associate, Bolloré receives dividends. Vincent Bolloré is the Chairman of the Supervisory board of Vivendi, held today with 14.5% by the Bolloré Group. In 2015, Vivendi paid an ordinary dividend with respect to 2014 of €1 per share which was supplemented by an extraordinary interim dividend of the same amount, due to the success of the sale of GVT and the 20% interest in Numericable-SFR. Added to the ordinary dividend, a second extraordinary interim dividend (€1 per share) is expected in 2016. In 2017, Vivendi should pay an ordinary dividend, already expected at €1 per share. Between 2015 and 2017, Bolloré will consequently receive a total of €914m from Vivendi.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Bollore. We currently have 5 research reports from 1 professional analysts.
Hays plc (HAS.L, 182p/£2,639m) Q3 trading update to March 2018 (12.04.18) | Hydrogen Group plc (HYDG.L, 36.5p/£12.2m) Final results to 31 December 2018 (10.04.18) | PageGroup plc (PAGE.L, 537p/£1,755m) Q1 trading update to 31 March 2018 (11.04.18) | Parity Group plc (PTY.L, 11.1p/£11.3m) Final results to 31 December 2018 (10.04.18) | Robert Walters plc (RWA.L, 699p/£528m) Q1 trading update to 31 March 2018 (10.04.18)
Companies: HAS HYDG PAGE PTY RWA
Interims to February show operating profit up by 45% to £0.55m on 3.6% revenue growth to £8.6m. The results vindicate APC’s strategy of focusing upon driving high margin, design-in distribution sales as well as the benefits of a lower fixed cost base. APC acquired First Byte Micro in January which has provided a significant boost to its APC Locator’s business. The group continues to focus on its three-strand growth strategy. The shares have risen by 13% in the last three months. We retain our FY2018E PBT of £0.68m and 10p TP. Buy.
Companies: APC Technology Group
FY results are in line with expectations, showing a strong increase driven by acquisitions and 8% organic growth. Adjusted PBT is up 24% with EPS up 10%. Since the year-end, the group has continued its buy and build strategy with the acquisition of Beaumanor and Derek Lane, while the placing ensures balance sheet flexibility. The focus for the year is driving synergies. With a satisfactory Q1 trading update, we make no changes to our forecasts. The shares remain cheap in our view, trading at a substantial discount to its nearest comparator and at 43% to its peer group average. We recently increased our target price to 215p to reflect the Beaumanor acquisition. We are conservatively targeting a P/E in 2019 of 12.5x, providing strong upside from current levels.
Companies: Flowtech Fluidpower
FY2017 has been a period of excellent headway and Flowtech has entered FY2018 with confidence. As previously noted, management has successfully integrated six acquisitions over 2017, while operational improvements and a more favourable backdrop has driven a 24% increase in adjusted PBT to £8.7m (in line with ZC forecast). Revenue growth of 46% to £78.3m is split 8% organic and 38% through acquisition, with year-end net debt at £14.9m (FY2016 £13.1m). The platform for further progress is strong, underpinned by the acquisition of Balu in March 2018 for an EV of £10.2m, alongside the equity fundraise of £10.5m. The shorter-term focus is now on extracting efficiencies across the enlarged Group, particularly with regards to extracting procurement benefits. Nevertheless, there are significant opportunities for further consolidation beyond this, particularly in mainland Europe, where there is scope to leverage Flowtech’s existing brand relationships that in turn can drive long term earnings progression.
Companies: Flowtech Fluidpower
We note today’s update on the distribution agreement (DA) termination notice and the final results. The two new pieces of news, in our view, are that the gross book value of the disputed stock was £4.3m at 31 March 2018 and that Sprue has entered into a £7m revolving credit facility with HSBC and drawn down £3m of this on 29 March 2018. Our forecasts, target price and recommendation will remain under review until the 2017 final results are reported for which, no date has yet been confirmed.
Companies: Sprue Aegis
GYG has delivered a robust set of 2017 results, which are marginally ahead of our forecasts reset in November. Strong growth was delivered at all levels, and was primarily organic growth, with 14.7% revenue growth leading to 7.6% growth in adjusted EBITDA as it continues to invest in growth. We are maintaining our forecasts on the back of these results, and are comfortable with our assumptions given the strength of its order book, the growth dynamics of the market and its market leading position within this. We note the shares have been de-rated of late, and believe the FCF yield (>10% from 2018E), post-tax ROCE approaching 30%, dividend yield in excess of 6% and organic revenue growth (>10%) remains highly attractive.
With Q1 2018 behind us, we evaluate the performance of the tech sector versus the broader market, and peers across the pond to see how the London listed technology universe compares to its bigger and better known US counterparts. We examine if the UK listed tech sector is overvalued on a relative basis. No tech sector review can be complete without analysing the performance of the big eight mega tech companies who had a very good year and currently have an aggregate market capitalisation of US$4.79tn, roughly the size of the Japanese economy.
Companies: APC ECSC EUSP FDM GETB SPRP SNX
This quarter we use finnCap’s Slide Rule to provide both top-down and bottom-up analysis of the UK’s Technology and Telecoms sectors. Our findings are very reassuring: the Tech sector scores the best (across all sectors) when considering Growth and Quality – Taptica*, Frontier Developments* and dotDigital* in particular stand out on these metrics. Given these attractive characteristics and growth prospects, the Tech sector is unsurprisingly one of the most expensive – currently trading at 17.2x FY1 EV/EBIT and 23.8x FY1 P/E, versus 15.0x and 18.5x respectively for the wider market. Despite valuations appearing high, we believe there are value opportunities. For example, Proactis* features in finnCap’s QVGM+ portfolio (ranked 17/462) – the company offers attractive organic and inorganic growth, with earnings forecast to grow by 26% CAGR over the next two years, but despite this, only trades on 15x FY1 earnings and offers 8% FCF yield in FY2.
Companies: 7DIG ALT AMO ARTA BOTB BLTG CTP CITY D4T4 DTC DOTD ELCO ESG FDEV GBG IDEA IDOX IMTK IGP IOM KBT KCOM KWS LRM MAI MMX NASA NET PHD QTX QXT RCN 932 SSY SEE SIM SPE SRT STR TAP TAX TEP TPOP TRAK UNG VIP ZOO CYAN ONEV
Following the comprehensive trading update in early March today’s FY17 results hold few surprises. Revenue of £3.1m (FY16: £3.3m) is in line with forecasts that were revised at the time of the trading update and reflect the slower build out of revenue from key new customers. Gross profit of £2.0m (FY16: £2.1m) is also in line with forecasts that increased 7% in March due to a stronger than expected performance in margin. Last month’s placing to raise c.£300k underpinned the strength of the balance sheet that had £2.9m of net cash at the period end. Operationally, the business is moving in the right direction with annuity Transaction Services revenue increasing and the restructuring announced in March reducing the cost base. Forecasts continue to assume Mi-Pay will achieve profitability at the EBITDA level in FY18E.
Companies: Mi-Pay Group
As indicated in recent trading statements (19th Dec and 8th Feb) FY17 results are in line with expectations. Revenue of £298.3m (FY16: £293.2m) is +1.7% YoY and 1.6% ahead of ZC. Gross margin declined 120bps to 30.4% due to cost input pressures resulting in adj. operating profit of £22.3m, a decline of c.13% YoY but in line with ZC estimate. Adj. PBT declined 14.5% to £21.1m resulting in adj. EPS of 12.3p, in line with ZC estimates. In the short term the industry outlook remains difficult and whilst today’s statement indicates trading in the early part of FY18 has been as expected, we trim profit expectations by c.4% to £18.2m (prev. £19.0m). A proposed final dividend of 4.6p takes the FY17 total to 6.7p, in line with ZC forecasts. The valuation of 7.5x FY18 earnings and 4.9x EV/EBITDA already appears to be discounting a great deal of negative news and even on the rebased dividend the shares yield a prospective 6.5%.
Companies: Epwin Group
The AGM trading update signals that it remains confident of achieving existing market expectations. Some customer programmes have recently seen lower than expected volumes, although new business continues to be won and management is confident it can bridge the gap. The growth story remains intact – sales growth has been robust; the scale of this growth has been a challenge but profit delivery is now in much sharper focus. The group intends to supplement the board and has already implemented operational changes that have already resulted in an improvement in gross margin. The shares now trade at a discount to its IPO price and we see strong value in the shares for their robust expected long-term sales growth and gross margin recovery.
Companies: Velocity Composites
Solid State’s trading update signals that the group has traded in line with market expectations in the year just ended, with better than expected growth in distribution and power. However, the outlook in Communications, its highest margin generating business, has seen order flow more difficult to achieve in America. We reduce our adj. PBT by £0.9m to £2.5m, with a 25% reduction in EPS to 25.1p. Our price target also reduces by a similar amount from 535p to 400p.
Companies: Solid State
The developer of advanced security and surveillance has today issued a strong AGM statement reporting that Q1 revenues were slightly ahead of management's expectations and almost 15% up on the same period in 2017. Order intake was boosted by £1.5m of radio communication contracts received from the MOD announced in February, although excluding those contracts, order intake was still higher than expected. The majority of the above MOD orders were scheduled for delivery in H1.
Companies: Petards Group
discoverIE has confirmed trading for the full year to March 2018 has been in line with management expectations reflecting strong growth in year-on-year profitability. This has been supported by sales growth of +15% and rising margins (both gross and operating). We make no changes to our forecasts or target price and reiterate our view that discoverIE is successfully targeting structural growth markets.
Companies: Discoverie Group
We have argued consistently over the last 12 months, as there is greater confidence in EUSP’s ability to become sustainably profitable, the share price should improve. This had been the case up to September 2017, since when the share price has fallen from 20p to 11.75p. With today’s news confirming EBIT profitability, we believe that there is a strong base to build on beyond 2017. At this stage, we have made no changes to our adj. PBT forecasts for 2018, 2019 and introduce forecasts for 2020. With potential upside to these forecasts we are happy to maintain our DCF-derived target price of 25p and our Buy rating. We view the current share price as an excellent buying opportunity. REA