French media rumours of Bolloré exiting African activities

Bolloré could be looking to exit its long-standing logistics activities in Africa according to French media. Although the company has not commented on the matter — so it remains all speculation — we see this potential move as a clear positive. Bolloré is faced with the high capital intensity of the business while affronting competitive pressures from deeper-pocketed and expanding rivals. Supportive valuations for logistics & port operators and the upcoming departure of Vincent Bolloré suggest that the timing is right.

According to French media reports (Nouvel Obs and Le Monde), Bolloré could be looking to sell its logistics activities in Africa, with Le Monde claiming that the group has tasked Morgan Stanley with surveying potential buyers, among them CMA CGM and Maersk. The company has not made any official comments on the news.

While Bolloré has not made any comments regarding these media reports, it is a worthwhile thought experiment to go over these claims and the potential implications for the group if they are proven true.

First off, it is completely unexpected, as this scenario has never been evoked by management, considering the long-standing importance and the investments poured into this division. This would result in the exit from one of Bolloré’s historical businesses (over 30 years) and one of its main activities outside the Vivendi/UMG sphere.

A glance on Bolloré Africa Logistics

Bolloré has a wide presence on the continent through this business unit, which comprises notably the operation of 42 port terminals, mainly in West Africa, as well as the management of 16 container terminals, 7 roll-on/roll-off terminals and 3 railways. Bolloré Africa Logistics reported revenues of €2.1bn in 2020, accounting for 36% of Bolloré Transport & Logistics’ total turnover (€5.8bn), which is the core pillar of Bolloré ex-Vivendi.

While the group does not disclose the profitability of its African activities, it is fair to say that EBITDA margins for port and container terminal operators are quite high, averaging between 35-45% and even higher for certain locations depending on the level of risk (particularly in emerging and frontier markets). However, these activities, while profitable, are highly capital intensive.

Historically, the group has made significant investments in its African operations, these are mainly related to contractual obligations as part of the concession agreements awarded to Bolloré. These investments are staggered over long periods of time (i.e. the duration of the concession contracts) and can average c.€200m per year (€178m in 2020, €149m in 2019 and €270m in 2018).

An increasingly challenging competitive environment

Bolloré was early in identifying the growth potential of Africa opening to world trade, and it was able to secure a vast footprint in strategic locations, with a particular focus on West and Central Africa, that benefited from the rising trade flows. However, more recently, deeper pocketed rivals have also seen this opportunity and have expanded their footprint in the continent, notably DP World and China Merchant Group.

Just this week, DP World and CDC Group (a development finance institution owned by the UK government), announced a partnership to commit $1.72bn over the next few years for the development of port infrastructure in Africa, including a $1.0bn investment in a new port facility in Senegal, Bolloré’s home turf (the company has a concession for the operation of Dakar’s container terminal since 2014).

The missing picture

The media articles do not reveal the full scope of the disposal, only that the group is interested in selling its port and container terminal activities in Africa. But it would be coherent that Bolloré would opt for a full exit, instead of deciding to maintain a marginal exposure (keeping the railways for example).

We currently value Bolloré Transport & Logistics at €8.8bn, based on a 14x EV/EBIT multiple, derived from close peers such as DP World, China Merchant Group and other port operators. This makes it the largest asset in Bolloré’s NAV/SOTP, accounting for 39.0% of the gross assets. The company does not disclose the profitability of the business units nested under the ‘Transport & Logistics’ pillar, so extracting an EV/EBIT-based valuation would not be possible. However, a back-of-the-envelope calculation gives us a c.€3bn valuation based on our current estimates.

Preparing the legacy

In terms of timing, the (so far hypothetical) exit from these historical activities seems quite fitting. With Vincent Bolloré set to pass on the reigns to his children in time for the commemoration of the group’s bicentennial in February 2022, closing this African chapter could be a way of giving the Bolloré heirs a clean slate to trace a new path for the family endeavour.

It has to be said that, while profitable, the African operations have also been the source of legal and reputational risks that can be easily found by scanning through the press coverage of Bolloré’s activities on the continent. This comes also at a time when transport and logistics activities are experiencing a boom due to a global catch-up effect on the faster than expected re-opening of the economies following the hit from the COVID-19 pandemic. Finding a willing buyer, and a good price, for Bolloré’s coveted African footprint should not be hard.

Given the current posture of the group regarding these media reports, it all remains pure speculation. However, this seems like a sensible, even if unexpected, move from Bolloré, that could give further wings to what has been quite a fruitful equity story following the success of the UMG spin-off.

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