Vivendi SA (VIV) Union Securities Switzerland
Company Description
Vivendi is a global content and media conglomerate headquartered in Paris. September 14, 2020
The company, through its subsidiaries, is active in music, television, film, telecommunications, games, ticket sales, book publishing and advertising.
Its business is arranged around four major sectors (see details on page 5). Sector Consumer Discretionary Industry Media Universal Music Group (UMG) – 45.5% of revenues Mkt Cap ($bn) 38.0 o World’s leading music rights owners and music publisher of popular music artists, including Taylor Swift or Billie Eilish Price 23.34 1Y Range 15.96 - 24.87 Canal+ Group – 35% 200 D Histo Volatility 24% o Leading French audiovisual media group Havas – 13% (in EUR MM) o French multinational advertising company Revenue 10'819 EBITDA 1'726 Others – 6.5% EBITDA Margin 16.0% o Editis – Book publishing 1 Year Fwd. P/E 24.2 o Gameloft – Mobile video games publisher Dividend Yield 1.71% o Vivendi Village – digital and live entertainment 5 Year Price Action
Vivendi is managed by French corporate raider Vincent Bolloré who owns a bit 26 less than 30% of the company. Under his direction, Vivendi has earned a 24 reputation as among the most acquisitively-driven companies in the media sector. 22 20
Vivendi holds 23.9% of Telecom Italia, 28.8% of Mediaset (the largest Italian 18 media company). Bolloré has feuded for years with Mediaset, owned by 16 former Italian Prime Minister Silvio Berlusconi to combine its stake with its 14 existing holding in Telecom Italia. févr.-13 févr.-14 févr.-15 févr.-16 févr.-17
Vivendi also owns 4.4% of Spotify and a 49% stake in Vevo through UMG and Source : Bloomberg a 31.4% share of Banijay Group (French TV Production Company). It is building a stake in French media company Lagardere and it acquired M7, a pay-TV company operating in Benelux and in Eastern Europe in 2019. Union Securities Research Team Vivendi’s origins date as a far back as 1853, when by imperial decree, a water [email protected] company named Compagnie Generale des Eaux (CGE), obtained rights to sell Tel +41 22 591 18 64 supply water to the city of Lyon. A century later, in the 1980s, CGE began to diversify, first into related industries like waste management, energy, Union Securities Switzerland SA construction, and then eventually into pay-TV with the acquisition of premium 11 Cours de Rive cable channel, Canal+. In 1998, after selling off its property and construction 1204 Geneva, Switzerland segments (which later became Vinci SA), CGE would change its name to http://www.unionsecurities.ch Vivendi and devote itself thereon entirely to mass media and telecom.
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Recent Developments
In September 2019, Vivendi acquired M7,a large pay-TV company operating in 7 European countries (the Netherlands, Belgium, Czech Rep., Slovakia, Austria, Hungary and Romania)
In December 2019, Canal+ struck an exclusive distribution deal in France with Disney+. Canal+ also has a non-exclusive licensing deal with Netflix and became the exclusive French distributor of beIN Sports channels and thus regained its lost access to the French football league.
In December 2019, a consortium led by Tencent took a 10% stake in UMG at a €30bn valuation.
In 2020, Vivendi built a 23.5% stake in French publishing company Lagardere (Hachette Larousse, Relay…) for about €500M. So far, CEO Arnaud Lagardère is able to secure control over the company founded by his father thanks to a distinctive governance and legal status as what is known as a société en commandite par actions under French law.
H1 2020 revenues remained resilient at both UMG (-3% YoY) and Canal+ (-3% YoY) but Havas revenues dropped 18% amid a slump in the global advertising industry. Vivendi confirmed it is in talks with multiple interested parties regarding the sale of further UMG stakes ahead of an IPO.
In September 2020 Mediaset and Vivendi resumed talks to explore a possible settlement of the companies’ years-long legal dispute.
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Investment Case
We are positive on Vivendi due to its enviable position relative to the streaming-driven recovery of the music market and its diverse but as yet unfulfilled portfolio of European- and US-oriented media assets. Despite its aggressive acquisition history, Vivendi has a strong balance sheet and an ambitious buyback program.
We expect that the main engine of growth at Vivendi will be its Universal Music Group (UMG) segment, which is currently poised— thanks to its large catalogue and lead in market share—to maximally benefit from consistently strong single-digit YoY revenue growth from streaming. Margins in UMG are modest but should see improvement as the company renegotiates contracts and pivots toward subscription revenue model. Value of the Music business could be unlocked through an IPO (in the US preferably) or through the sale of stakes in UMG similar to the Tencent deal.
Canal+ is an underappreciated asset in our view and could surprise on the upside. Canal+ is probably at an inflection point in terms of subscriptions and is becoming and has become an integrated content aggregator while remaining a high quality creator of original programs. In terms of profitability it should also benefit from its cost-cutting program. . Stock seems to be properly valued at current prices (see SOTP valuation below) and further upside will hinge on: . Further rerating of UMG . A successful turnaround at Canal+ . A recovery of the global advertising industry
In SOTP (Sum of the Parts) valuations, UMG concentrates the highest value. Though analysts’ opinions vary on the value of each asset, we present a simplified picture implying a very reasonable 15% discount valuation at current market price (discount rises to 26% when giving a €30bn value to UMG).
UMG €25bn Canal+ €5bn Havas €2bn Stake in Telecom Italia and Mediaset €1.5bn Others including M7 €1.8bn Net Debt -€3bn Total €34bn
Bullish Case Bearish Case Vivendi grows as a word class media company Complex group structure fails to show synergies and to Improving UMG margins create value beyond UMG Higher intragroup synergies UMG margins stagnate Recovery of Canal+ Canal+ continues to decline Other businesses are valued at zero by investors
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SWOT Analysis
Strengths Weaknesses
Business, country, and subsector diversification High reliance on Universal Music Potential synergies within the group Mixed results in M&A history, failure to create a European Low net debt level pay-TV champion so far and ongoing feuds (with Telecom Italia, Mediaset, Lagardere) Music Strong beneficiary of the secular growth in streaming Music Leading market share among major labels Dependent on dominance of record labels Enormous catalogue (Elton John, Bob Marley, The Low margins Beatles, The BeeGees, the Eagles, Frank Sinatra etc…) Negotiating power of streamers, Spotify, Apple Growing music publishing segment Partnerships with Tencent Music and netEase in China Film/Pay-TV Low Pay-TV sub growth in France Film/Pay-TV Tight cash flows at Canal+ Core presence in France, growing presence in Italy Lack of international presence Limited competition in European pay-TV Other Businesses Other Businesses Unrealized potential presence in gaming Strong position in Mobile gaming The advertising industry is structurally challenged Havas is a world class advertising company
Opportunities Threats
Higher synergies within the group Competition from more specialized conglomerates in US: Consolidation of the media industry in Europe Film/TV: Disney, TimeWarner-AT&T; Music/Streaming: Apple/Google Music Planned segment synergies fail to yield results Reliable growth streaming growth in US+Europe Destructive M&A Growth of streaming in China Renegotiation of legacy contracts Music IPO of UMG to unlock value Slower than expected growth in UMG streaming revenues Pressure from distributors and artists for a greater share Film/Pay-TV of streaming revenues Recovery of Canal+ Shift from TV to online Film/Pay-TV Joint ventures with broadband/telecom providers Flat/declining sub growth in France Restructuring or “cost-optimization” in Canal+ Litigation in Italy Failure to create a European champion Other Businesses Rapid growth of mobile-gaming for Gameloft Other Businesses Recovery of the ad market for Havas Gaming fails to become a significant revenue driver Positive contribution and synergies of Editis Adverting industry continue to decline Consolidation of the publishing industry in France
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Detailed activities (as of Q2 2020)
Universal Music Group – 45.5% of revenues
UMG is the music and recording component of the Vivendi media empire. Although organized as a single entity, the company consists of hundreds of major and minor music labels—mostly in the US & the UK—of which the most notable are: Interscope Geffen A&M Records, Capitol Music Group, Republic Records, Island Records, Def Jam Records, and recently, EMI. By market share (30% in 2019), UMG is the largest record label in the world.
Revenue in Vivendi’s UMG Group is driven primarily by sales of its recorded music catalogue in either physical, digital, and license form. These sales, which account for approximately 80% all of business within the group, are to be distinguished from UMGs Music Publishing revenue stream, which consists of incoming royalties from the aforementioned catalogue. Royalties contribute 15% to revenue and are collected each time a composition is performed (live or the radio), sold, or used in connection with visual images (film, TV, video games, etc.). This distinction has become increasingly relevant in recent years with the rise of digital streaming, which is now driving growth in back-catalogue publishing revenues.
Canal+ Group – 35%
Vivendi’s film and television presence is achieved through its Canal+ Group, a French-based film and television studio and distributor. Canal+, the oldest of the component companies—and oldest in Vivendi’s entire media portfolio—is a French premium cable television channel provider, which airs original and licensed content from France and the US.
Canal+ pay-TV operations in France and abroad accounted for more than 90% of the total revenue of the Canal+ Group segment. Remaining contribution is split between free-to-air TV services in France and Canal+ Group’s production and distribution arm, StudioCanal.
In recent years, performance of the Canal+ Group has slowed somewhat in the face of flagging domestic sub growth in its pay-TV service and low margins at StudioCanal. Restructuring efforts are underway in order to bring the group up to speed with rival services.
Havas – 13%
Havas is the advertising and public relations branch of the Vivendi conglomerate. Operating in over 100 countries, it consists of two main operational segments: the Havas Creative Group and the Havas Media Group, each of which comprises a number of regional and worldwide agencies.
Havas joined the Vivendi balance sheet as a consolidated item on July 3, 2017, though the advertising group has been a component of the Vivendi/Bollore network since 1998. It even, for a time, went by the name Vivendi Universal Publishing, before merging with Lagardere to become Editis in 2004. Currently, the company serves as the presumed point of synergy between the various media arms of the Vivendi portfolio.
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Others – 6.5% Editis – 4% Editis is group of publishing companies fully acquired by Vivendi in January 2019. It regroups 48 prestigious French book publishing houses including Bordas, Laffont, 10/18, Cherche Midi, Nathan, le Robert, Lonely Planet, or Plont.
Gameloft – 2%
Although a relatively small component of Vivendi’s corporate structure, Gameloft, a publisher of mobile video games, offers a useful indication of Vivendi’s posture in the gaming industry moving forward. Originally founded in 1999, by Ubisoft co-founder Michel Guillemot, Gameloft was snapped up in 2016 by Vivendi in a takeover that, at the time, appeared as though it would shortly include Ubisoft. Vivendi tried to acquire Ubisoft a few years ago before backing off and selling its participation in the company.
Vivendi Village – 0.5%
Vivendi Village comprises a small group of companies active in digital and live entertainment. Among others, it includes Vivendi Ticketing, which distributes tickets for live entertainment and sporting events. Vivendi Ticketing also serves as the internal service provider to UMG, selling tickets for and on behalf of the label. Also included in the group are German VoD service Watchever, concert venue L’Olympia, and the Paddington brand.
In practice, Vivendi Village functions as a sort of testing-ground for Vivendi’s smaller experiments in digital video and brand cooperation. Its small scale allows Vivendi to quickly jumpstart various media initiatives intended for later implementation on a wider scale.
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