A look at previous situations that may return to the spotlight
Vivendi is known for headline-grabbing M&A, rarely for its organic growth. We think this is about to change: we see
Vivendi delivering 5% organic growth for the first time in a decade in 2017–18, shifting the story from value to growth
- with the potential for a re-rating.
Achieving this growth requires a fix for French pay-TV. It also needs growth from music streaming to more than compensate for the decline in the legacy formats.
Can this happen? The findings of our extensive consumer survey, STAMP, and new work on music industry trends suggest it is possible.
Sentiment on Vivendi is bearish, reflecting Canal’s struggles and confusing capital allocation. Yet investors will cheer if growth surprises. We turn Outperform.
What are the key themes? What new work have we done?
1) Will Streaming grow 25% or 35% in 2017–18?
The difference is 300bp+ on organic growth at Music and almost 200bp for the group. We think the answer is 35%. We have analysed the potential of subscription streaming, combining the results
of our unique STAMP survey (10k participants, c80% of the music market, notably to assess the take-up of Spotify and Apple Music) with a new tracking of streaming subs. We are bullish. We see Streaming growing c35% in 2017–18 and expect organic growth at Music to accelerate to 5–7% in 2017–19.
2) Can Canal’s French pay-TV be turned around? We expect signs of recovery in H1 17, which could be a major catalyst.
Through STAMP, we asked Canal subscribers how they feel about their subscriptions. It is early days, but we see reasons for the decline in subs to ease in 2017. At the same time, the broader Canal group will benefit from new wholesale offers
and from strong growth in Africa and Content. France will remain tough but Canal group should return to growth.
What to Watch at Thursday’s ECB Meeting
Economists say it’s probably too soon for the ECB to change course on its QE program
It’s two years since the European Central Bank launched its giant bond-purchase program, known as quantitative easing, and its efforts finally appear to be bearing fruit. Inflation in the 19-nation eurozone has suddenly jumped to 2%, slightly above the ECB’s target, after hovering around zero for years. That has prompted calls for a policy reversal from Frankfurt, particularly in inflation-averse Germany. Investors will listen closely to ECB President Mario Draghi’s news conference on Thursday for signs for the road ahead.
What is the ECB expected to do this week?
Stand its ground. The ECB only recently expanded its QE program by a half-trillion euros, and economists say it’s probably too soon to change course. The recent jump in inflation is mainly due to higher energy prices, and that effect is likely to fade later in the year. Crucially, the region faces a tense political calendar over the coming months, and the ECB has indicated it wants to keep a steady hand on the economic tiller. “Another few quarters of macroeconomic data and knowing the outcome of the French elections are probably necessary for the ECB to start to change its tone,” said Vincent Juvyns, global market strategist at J.P. Morgan Asset Management.
How strong is the eurozone economy?
It’s improving. Unemployment is down, inflation is up and the bloc’s growth rate is currently outpacing that of other major advanced economies, according to financial-data firm IHS Markit. The ECB’s new economic forecasts, to be published on Thursday, are expected to show upward revisions to inflation for this year and next. Still, average data mask wide differences across the region: While northern European economies are accelerating, some in the south are struggling with weak productivity growth and a mountain of nonperforming loans.
When is the time to taper QE?
Within the central bank, policy makers are divided over whether the current level of stimulus is too strong for a recovering economy. Some top officials have suggested it may soon be time to start tapering, or winding down, the QE program. But investors are already tense ahead of elections in the Netherlands and France, which could see strong gains by anti-euro parties such as France’s National Front. The spread between yields on safe German bunds and government bonds in France and Germany has been widening for months. Against that backdrop, any public discussion of tapering looks premature.
What else could the ECB do?
While policy makers might shy away from any major policy changes, they might decide to send investors a signal that the days of ever-greater monetary stimulus are over. To do so, they could tweak the language of their policy statement to indicate that the risks to economic growth have diminished, or drop a commitment to accelerate QE if needed. The pace of the ECB’s bond purchases is set to fall from €80 billion ($84.52 billion) a month to €60 billion, starting in April.
What about interest rates?
The ECB has carefully left open the option of a fresh rate cut, ever since investors took fright a year ago at Mr. Draghi’s suggestion that rates had reached bottom. With inflation now above target, however, that pledge looks outdated. Yves Mersch, who sits on the ECB’s six-member executive board, suggested last month it should be dropped for the sake of the bank’s credibility. Still, other ECB officials have warned against even that small change. “The ECB wants to approach any policy shift with great caution,” said Marco Valli, an economist with UniCredit in Milan.
Scotland could hold independence vote in 'autumn 2018': Sturgeon
Scotland could hold an independence referendum in autumn 2018, just months before the United Kingdom is due to leave the European Union, Scottish First Minister Nicola Sturgeon said, the BBC reported.
The threat of a second Scottish independence vote further complicates Prime Minister Theresa May's negotiations with the other 27 members of the European Union over the United Kingdom's divorce terms.
Sturgeon said autumn 2018 would be a "common sense time" for Scotland to hold another independence referendum, once there is some outline of a deal to exit the European Union.
"Within that window, of when the outline of a UK deal becomes clear and the UK exiting the EU, I think would be common sense time for Scotland to have that choice, if that is the road we choose to go down," Sturgeon, who heads Edinburgh's pro-independence devolved government, told the BBC.
No decision has yet been taken on a date for a vote, she added. Under current constitutional conventions, a second independence vote would have to be approved by the United Kingdom's government in London.
The results of the June 23 Brexit referendum called the future of the United Kingdom into question because England and Wales voted to leave but Scotland and Northern Ireland voted to stay.
Sturgeon has repeatedly warned that the Brexit plans of the government in London could force Scots to call another vote on the grounds that circumstances had changed since 2014 when Scots voted 55-45 to stay in the United Kingdom.