BOUYGUES. A very small discount to NAV and pricing perfection on Bouygues Telecom

January 2016

Mathias Lascar

mlascar@makorsecurities.com

++ 44 207 290 57 77

Our thoughts in a nutshell

• We think deal Orange / Bouygues Tel can go through althoughthere are still a lot of obstables to meet• Valuation• Political support from Orange shareholder (French State) in the wake

of a major election – presidential election in 2017• Antitrust (EU or France)

• At 10bnE valuation for Bouygues Tel, we estimate Bouygues trades « only » at 9,2% discount to its NAV• We need to discount this discount (!) by 5% at least on execution

risks, so real discount to NAV is more like 4,2% we think• Also, future company will be a holdco. A 15/20% discount to NAV

more likely

Risks to our case

• Price tag of Bouygues Telecom• We estimate 10bnE is a max price for Bouygues Telecom

• Any increase in price tag would obviously be a negative to the Chinese of the discount

• Every 1bnE variation of price of Bouygues Tel represents roughly 3E of NAV per share

• If deal takes place, Bouygues will get circa 3bnE of cash in (1bnE from Alstom share buy back and 2bnE from Bouygues Tel according to market rumours)

Bouygues: a 9,2% discount to NAV with10bnE on Bouygues Tel

% change in EN

Bouygues 0%

Price 35,60

Shares 345,135

Market value 12 287

Total market cap 12 287

NAV 13 530

NAV / share 39,20

Discount to NAV -9,2%

Listed Asset Price Shares O/S Ownership Shares' owned Value % of Total

Alstom 27,44 310,6 30,7% 95,45 2 619 19%

TF1 9,80 210,5 43,0% 90,57 888 7%

COLAS 102,00 32,7 96,6% 31,54 25% discount to share price 3 218 24%

Autocontrol 35,60 345,1 0,0% 0,00 0 0%

Sub Total 6 724 50%

Non Listed assets Ownership EV Value % of Total

Construction 100,0% 2366 2 366 17%

Immobilier 100,0% 0 1 043 8%

Bouygues Telecom 89,60% 10000 8960 8 960 66%

Minority interests -52 0%

Provisions for post employment benefits -356 -3%

Loss Carry Forwards 53 0%

Holding costs -40 8 x EBIT -320 -2%

Net debt holding level -4 887 -36%

0%

Sub Total 6 807 50%-38%

Total NAV = 13 530 100%

CIX of trade we push

• - EN FP

• + 10% ALO FP

• + 10% TFI FP

• + 35% SGO FP

• + 35% ORA FP

Bouygues price targets from competition

Broker Recommendation Price target Comments

Natixis Buy 38

Alphavalue Reduce 36,3 Haven't seen report, but price target probably based on a NAV basis

SG Sell 29PT based on an SOP valuation (no comment on discount), Broker

sees antitrust issues on the back of Telenor / Telia merger fail

JP Morgan Neutral 36

Chevreux Hold 35

Exane Neutral 32 42E NAV with Bouygues Telecom at 10bnE

Bouygues Tel standalone valuation: 5,2bnEBouygues Telecom

2014 2015 2016 2017

Sales 4 432 4 323 4 380 4 436

EBITDA 694 696 745 815

EBIT -65 -94 -39 62

EBITDA % 15,7% 16,1% 17,0% 18,4%

EBIT % -1,5% -2,2% -0,9% 1,4%

x 2015 EV

EV implied by EV / Sales x 1,21 4 323

EV implied by EV / EBITDA x 7,5 696 5220

EV implied by EV / EBIT x

Details on Bouygues Tel valuation

• Company targets a 25% EBITDA margin in 2017 for Bouygues Telecom • vs 16,1% in 2015 ….

• Target to have EBITDA of more than 1bnE in 2017• Concensus 15/20% below

• Bouygues Telecom market share in mobile at 14,2% • # 3 along with Free (13,3%) behind Orange (35,6% market share) and

SFR (28% market share)

• Since SFR was acquired by Numericable it lost 1,2m subscribers (close to 5% of client base) and hence re-started a price war (since Oct / Nov 2015)

A few words on Orange / Bouygues tel

• Orange and Bouygues Telecom did say on 5 Jan 2016 that theywere in discussions• Confidentiality agreement signed and preliminary discussions started

• French politics not negative• French deputy minister Mrs Lemaire (in charge of Numeric) says that

negociations had to take place

• French eco minister Macron says will assess value creation and intends to remain reference shareholder

• Orange CEO says talks need to be quick (1 to 2 months) and strong determination to preserve jobs and friendly tarriffs

Antitrust

PositiveDisposal of EEE stake couldfacilitate (UK)

• CMA UK antitrust decision on 18 Jan

• Would increase likelyhood thatOrange / Btel judged by French antitrust rather than EU

• In case more than 1/3 of combined sales based outsideFrance, EU antitrust. Otherwise, France (see nextslide)

NegativeEU antitrust rejected in September15 the merger Telenor / Telia

Will the EU antitrust accept thatFrance looks at Orange / Bouygues Tel « sensitive » issue ?

% of pro forma sales France ORA + BTEL & market shares in mobile and fixed (France)

Sales Q3/15

ORANGE France 4794

Spain 1216

Poland 709

Belgium / Lux 306

Central Europe 421

Middle East / Africa 1304

Enterprise (EE) 1577

BOUYGUES Overall 1163

Total ex EE 9913

France ORA + BTEL 5957

in % 60,1%

Total cum EE 11490

France ORA + BTEL 5957

in % 51,8%

Source: Exane

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