Barcap :2015A results were below at EBITA but better at EPS thanks to taxes (somewhatone-off in nature). These results are a sideshow however to 2016E where
management was supposed to give us some indications on Canal+’s big
restructuring. Apart from a potential distribution deal with beIN Sports (subject to
regulatory approval) and new set-top boxes, we still unfortunately have few clues
about the Canal+ restructuring. 2016E could “lead to a significant decline in the
operating results” but we do not know the magnitude. Arguably, we have more
visibility on 2019E where management agreed with c. €700m of EBITA (we forecast
c. €600m). In conclusion, Vivendi is a stock with little visibility where management
states that growth will be stronger in 2017E/18E. The lack of visibility deserves a
discount in our view but Vivendi currently trades at 11x 2017E EV/EBITDA, a 10%
premium to the sector on 10x. We feel this is too generous but the dividend yield
(11% including announced extraordinary) and the buyback below €20 provides
downside protection. This is why we are Equal Weight. We lower our sum-of-the
parts to €19.00 owing to less value in quoted stakes and lower Canal+ valuationKepler
UMG was strong and Canal weak. Restructuring was stepped up at Canal.
UMG strong and Canal weak
Q4 earnings were something of a mixed bag, coming in ahead of forecast at UMG (EUR334m EBITA vs EUR305m forecast), but below-forecast at trouble Canal Plus (EUR96m loss vs. EUR45m loss forecast). The beat at UMG was driven by strong revenue growth (4% LFL vs 0% forecast), similar to what we saw from peers Sony and WMG in Q4 and only marginally boosted by one-off settlements. Excluding restructuring (EUR85m vs EUR28m in Q4 2014), Canal Plus's EBITA actually improved YOY by 20% in a quarter that traditionally generates losses due to seasonality.
Warns on Canal in 2016 as turnaround investments step up
The guidance, though, reflected the well-known difficulties at Canal Plus, with a heavy year of investment in content/technology, and an exclusive deal with BeIN Sports (details still unclear as it is being reviewed by the competition authority but it seems Canal will retain BeIN subscription revenues in return for payment of a minimum guarantee), designed to turn around the pay-TV business in France by 2018. The target is to improve EBITA versus 2015 underlying by more than EUR250m. How much will be reinvested and how big the hit to 2016 EBITA will be remains unclear. For now, we lower our 2016 EBITA forecast for Canal Plus by EUR100m.
We lower our EPS forecast by -8.6%, and remain buyers
For UMG, the guidance calls for for moderate growth in EBITA in 2016 and for an acceleration in growth in 2017 and thereafter as streaming (whose revenue growth accelerated in H2 from 35% to 50% following the Apple Music launch) continues to ramp up. On the back of this, and a stronger-than-expected end to 2015 , we raise our UMG forecasts by 5%. Overall, we lower our 2016 EPS forecasts by -8.6%. Though there is continued uncertainty over where Canal Plus's earnings may bottom, the difficulties in the domestic pay-TV business cannot come as a surprise. Turning it around is no easy matter in a market that is shifting towards on-demand, but we believe margins could settle in the 10-15% range at least after restructuring (vs 6.5% 2016E and peak of 14.6% in 2010), so we would use any weakness today as a buying opportunity. The last restructuring in 2006 saw margins drop from 6% to 2% before returning to 9% and 12% in the following two years. Vivendi also launched a bid for Gameloft at EUR6 per share (a meagre 10% premium, costing up to an additional EUR360m), possibly to put pressure on the Guillemot family to cede control of Ubisoft.