--> Add to Europe Focus List: We re-initiate on Vivendi (O/P, €24 price target) and add it to the Credit Suisse Europe Focus List. We argue Universal Music is the most valuable asset within the group, and include it at €10bn in our new SOTP valuation – significantly above consensus at €6.5bn. We argue the shift in music consumption towards paid streaming will have a positive impact on Universal's EBITDA growth, which we forecast at 13% CAGR 2013-2020. We elaborate on our thesis in our in-depth study of the Global Music industry
-> End-game could be two listed assets: While there could be synergies between the business units, we argue one logical way for Vivendi to fully shed its conglomerate status, and its resulting valuation discount, would be to sell GVT and spin-off Canal Plus or Universal Music into separate listed entities. We highlight that should the group's newly-installed management
team choose this route, it could yield a "Blue Sky" valuation of €28 per share.
--> Catalysts: Anti-trust clearance of the sale of SFR to Numéricable by the end of 2014; Vivendi reports Q2 results on 28 August.
--> Valuation: We value Vivendi at €24 per share, which assumes a €22.30 "base" SOTP valuation plus €1.80 per share accretion from a €5.5bn share buyback. We also highlight that if the company were to sell GVT for €8bn in cash and spin-off UMG (or Canal Plus) into a separate listed entity, this would yield a "Blue Sky" valuation of €28. Moreover, if we were to strip out Vivendi's cash, liabilities and listed assets, the media assets are trading at a 2014E EV/EBITDA multiple of 6.3x, which looks very low when compared with other content assets in Global Media, which trade at 12.1x.
--> GLOBAL MUSIC
Paid streaming will transform the music industry: In this report, we analyse how the rapid shift in music consumption towards paid streaming will drive a period of structural growth in the industry and refocus investors on the value of owning music content. Our key call is to buy Vivendi (OP, €24 price target, added to EUROPE FOCUS LIST), which owns the largest global label group, Universal Music. In a separate report (see Vivendi – Music: the forgotten content growth story) we raise our valuation of Universal to €10bn, materially ahead of consensus at around €6.5bn.