We are believers in the Canal+ turnaround
The market is skeptical over Vivendi’s targets for turnaround at its French pay-TV operation, Canal+ (C+). But our analysis has shown a surprising scope for improvement. We now incorporate E230m of cost saving by 2018. We now also see a major opportunity in Africa and StudioCanal. We had been concerned over capital allocation and corporate governance, but now see Mr Bollore’s interests as more aligned with shareholders. Our VIV EPS rises to 18% ahead of consensus by 2020. The C+ regulatory review in June next year offers a positive catalyst. Upgrade to BUY, TP E22 offers 23% upside
Canal+ is central to the Vivendi investment case
Vivendi has been rationalized back to its core of music and pay-TV. C+ is key - we find far less variance in valuation and
estimates for UMG. We have held extensive discussions with Vivendi on their plans, taken views from our Sports Rights
panels & French regulatory sources. We have benchmarked with Sky UK, DirecTV, TF1, TALK, VMED, undertaken a
detailed review of the OTT opportunity & scope for improved terms from French ISPs plus renewal of the BeIN Sport
deal. The conclusion is that large cost savings and improved revenues are possible. We are increasing earnings forecasts
for C+ in France by 20-30% which is driving our above consensus view on Vivendi EPS.
Africa & Studio Canal easily dismissed, but also large upside
VIV’s enthusiasm for investing in Africa had looked a conflict of interest given Bollore Group’s interests in the region. But digging deeper has shown VIV is well positioned to capitalize on explosive growth in subs in the region driven by DTT
and mobile video. We have undertaken a detailed study, with input from our Naspers analysts and regional data
specialists. For StudioCanal, research for our Content Conundrum report has revealed the major ramp in TV production
and strong growth at Banijay-Zodiak, which stands to be a transformative deal.
Bollore is your friend in this process, not foe
Mr. Bollore is exactly what is needed at C+; pushing through the radical reform that is needed. He has form in successful
turnarounds and his African presence looks to be an asset, not a conflict of interest. He is heavily invested with E3.5bn in
Vivendi stock. Concerns over capital allocation look overdone to us; management and shareholders look more aligned.
Upgrading to BUY from Hold. TP E22. regulatory catalyst in 2017
TP rises to E22, offering 23% upside and we upgrade to BUY. We value on SOTP and move to recovery/2018 multples in
C+. Key downside risks: cost saving targets, loss of subs and/or ARPU, being outbid for premium rights, an acceleration
of download declines and streaming margin erosion, dividend payout and corporate governance.