The implicit value of Canal+ is now distressed. While the rejection of the BeIn Sports deal is a setback, we see appeal in the Vivendi story. PT lowered to €19, remain OW.
'Dr No'. The Antitrust Authority has rejected the Canal+/BeIn Sports deal.
However, hope is not lost. According to its head Bruno Lasserre the Authority
"would now work on a clear regulatory framework for 2017-22, which will
give Canal+ a clear path to deploy its strategy".
'Ice Age'. True, visibility on subs growth – or stabilization – in France is
elusive. But Canal+ is today implicitly valued at a meagre ~€1-2bn – too low,
in our view: i) in France, cost-cutting ( €200m+ according to Les Echos) is likely
to be intensified, protecting earnings. New offers, due in H2, may also help
commercial momentum. ii) Africa, free-TV and Studiocanal growth should
more than offset domestic pay-TV weakness. iii) If the turnaround
succeeds,Vivendi 2019 EPS would be >15% too low and Canal+ would be
implicitly valued at ~2x 2019e EBITA.
'Give life back to Music'. UMG trends have been mildly disappointing so far.
We remain optimistic though as industry trends are strong. We expect organic
growth to accelerate from 0-2% to 3-5% as i) mix continues to improve (more
streaming, less physical/downloads); ii) 2014-15 market share losses should
reverse; iii) there is an opportunity to extract more money from ad-supported
music platforms.
'Command & Conquer'. Investor feedback suggests they are worried about
Vivendi capital allocation. Since 2014 though, €8.6bn has been returned to
shareholders against 'only' €5bn invested in bolt-on M&A and stakes. The
€2.5bn investment in TI is out of the money for now but fairly immaterial at
the Vivendi level (-€0.5ps).
It's tough out there. We cut our estimates and PT to €19 to reflect tougher
short-term trends at Canal+ and a lower value for TI (-35% YTD), but we still
see >25% upside.
'Bullish'. After a poor run since going xdiv, the risk/reward skews positively (-
10/+70%). We expect cost-cutting at Canal+ and acceleration in Music trends
to help drive a re-rating of the stock, which now trades at a ~20% discount to
the sector on ~8x 2017e EV/EBITDA. A resumption of the share buyback would
also help. The current share price is ~15% below Vincent Bollore's last
investment round, providing a good backstop.