Investing.com -- UBS initiated coverage of French conglomerate Bouygues with a "buy" rating and a 12-month price target of €53.60, saying the recent drop in the shares offers a "compelling buying opportunity."
Shares in Bouygues are down about 16% over the last two months as concerns over France's fiscal outlook have grown, UBS said.
If France extends its surcharge on large companies' profits into 2027, the impact is limited to a low single-digit percentage of group equity free cash flow, it said.
At a 14% equity free cash flow yield for 2027, UBS said it likes the risk-reward. Bouygues trades at about 11 times 12-month forward earnings, broadly in line with Vinci and at a premium to Eiffage at about 8 times, the broker said.
The 14% yield is about a 40% discount to pure-play European telecoms operators, it added.
UBS values the group by adding up its parts, then applies a 10% discount for being a conglomerate. Its upside scenario is €65.30 a share and its downside scenario is €32.60, which UBS said tilts risk 3.3 to 1 toward gains.
UBS said Equans, Bouygues' energy and services unit, could benefit if Europe speeds up data centre construction. In an upside scenario, UBS estimated data centres could add about €140 million in operating profit at Equans by 2030.
At a 12 times multiple, that would be worth about 10% of Bouygues' current market value, the brokerage said.
Equans' operating margin has risen to 5.2% from 2.3% in 2022, versus 6% to 7% for peers, UBS said. It forecasts Equans' sales will grow about 3% a year from 2026 to 2030. Equans' revenue fell 2% on an organic basis in 2025 after rising 3% in 2024, UBS said.
UBS said Europe accounts for only about 12% of global planned and under-construction data centre capacity.
Equans' data centre revenue was about €935 million in 2025, roughly 5% of its total, UBS said.
UBS forecasts Bouygues Telecom's service revenue will grow 1% a year and its core earnings, known as EBITDAaL, will grow 3% a year from 2025 to 2028.
It cited continued growth in fixed-line services, a steadier mobile business and gains from the La Poste Telecom acquisition. Price rises by Orange and SFR add to its confidence, UBS said.
Bouygues is part of a consortium with Iliad and Orange that has agreed to buy SFR. The deal values SFR at €20.35 billion, with a potential €650 million earn-out. Bouygues' share of the price is €8.5 billion, which it plans to fund entirely with debt.
UBS estimates the SFR deal could more than double Bouygues Telecom's equity free cash flow by 2034 after synergies and integration costs.
It said the deal is not expected to add to free cash flow until the sixth year. UBS expects the French competition authority's first-phase review to begin by the end of the year.
UBS forecasts a core operating profit growth rate of about 7% a year from 2026 to 2030.
UBS listed risks including remedies attached to the SFR approval, weaker French mobile pricing, a slowdown in data centre spending, and France's political and fiscal outlook ahead of the April 2027 presidential election.
French 10-year bond yields have risen to about 4.9% in October from about 3.6% at the start of the year.
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