UPDATE: Bouygues Falls on Weak Margins at Telecom Unit

PARIS -(Dow Jones)- Building-to-broadcasting conglomerate Bouygues Wednesday reported a 10% rise in 2007 net profit, upped its dividend and forecast revenue growth in the current year, but its shares fell on disappointment at its telecommunications performance and lack of margin improvement.

Full-year net profit rose to EUR1.38 billion from EUR1.25 billion in 2006, coming in just under the EUR1.40 billion that analysts had penciled in.

The group didn't break out fourth-quarter figures, but a Dow Jones Newswires calculation shows net profit fell 18% to EUR270 million from EUR331 million a year earlier.

At 1550 GMT, Bouygues shares were down 5.82% or EUR2.97 to EUR47.88 in a slightly lower Paris market. The stock has fallen 8% over the past 12 months, notably on worries that the suprime mortgage crisis might affect its construction activities.

Investors said they were mostly disappointed by the company's telecom division, where full year operating profit grew 26% to EUR746 million.

"This translates to a very soft 4Q margin at Bouygues Telecom and, although it's traditionally a softer quarter, we had not expected such a harsh drop," Dexia analyst Jo De Mil said in a note. He maintains his buy rating on the stock but lowers its target price to EUR70 from EUR77.

According to Citigroup, the division "only managed a 16% Ebitda margin and 4% operating margin in the fourth quarter," which Bouygues attributes to the cost of acquiring and retaining subscribers, yet customer additions are still half that of rivals France Telecom and SFR.

As of Dec. 31, Bouygues Telecom had 9.26 million customers, an increase of over 6% on the previous year. However, the unit is seen by analysts as vulnerable to the entry of a fourth mobile-phone operator in France, as the government is expected to reopen the bidding process for another mobile license.

Dexia's De Mil also said the margin at Bouygues Construction came in lower than he expected, and that strong sales at Bouygues Immobilier were also not translated into higher margins.

All the group's construction-related businesses reported sharp increases in operating profit: 20% at Bouygues Construction, 19% at Bouygues Immobilier and 20% at road-building unit Colas. Order intakes at all three also grew strongly, and they all expect a strong rise in sales for 2008.

France's leading television broadcaster, Television Francaise 1, of which Bouygues owns 42.9%, last week reported 1.5% growth in 2007 operating profit, below analysts' expectations.

Bouygues' total operating profit grew 15% to EUR2.18 billion in 2007, while full-year sales, which the group reported two weeks ago, jumped 12% to EUR29.61 billion. It expects 2008 sales to rise 9% to EUR32.3 billion, and plans to increase its annual dividend by 25% to EUR1.50.

Later the group's chief executive officer Martin Bouygues gave few details about Bouygues's strategy, saying it was not planning to sell Bouygues Telecom or to make an offer for Alstom in 2008. He said the group is only interested in an industrial investment in French state-controlled nuclear giant Areva and that it will explore this with Alstom.

He added that "if Areva doesn't happen, we will do something else but not necessarily in the nuclear industry."

The French government is evaluating options on how and when to privatize Areva. According to recent press reports, the French State, which owns 93.4% of Areva, the majority of it through the nuclear research organization CEA, isn't planning to announce its decision over a reform of the French nuclear sector before the spring.

-By Laetitia Bachelot-Fontaine, Dow Jones Newswires; +33 (0)1 40 17 17 40; laetitia.fontaine@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 27th February 2008