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Vivendi: “Root Canal Surgery”

Equity analysts at Deutsche Bank have taken a fresh look at Vivendi in general and Canal Plus in particular, and in a thorough 94-page report says that they are “believers in the Canal+ turnaround” and that C+ is “central” to the Vivendi investment case.

“Vivendi has been rationalized back to its core of music and pay-TV. Canal+ 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 per cent which is driving our above consensus view on Vivendi Earnings/Share,” says Deutsch Bank.

Indeed, there’s high praise from the bank for Vincent Bolloré and his appointment to Canal Plus’ board. “Mr. Bollore is exactly what is needed at C+ which needs root-and-branch reform. Mr Bollore is pushing through the radical reform that is needed, and at speed. He has form in successful turnarounds. He is heavily invested with €3.5 billion now in Vivendi stock.”

The bank adds: “We had been concerned that Vivendi’ enthusiasm for investing in Africa was a conflict of interest. Bollore Group, the fully owned family investment vehicle, owns major logistics assets 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. For StudioCanal, research for our Content Conundrum report has revealed the major ramp in TV production and strong growth at Banijay-Zodiak. We now have trebling in EBITA at StudioCanal. Combined, Africa & StudioCanal will deliver ~€100 million incremental EBITA by 2020, worth 8 per cent to Vivendi earnings.”

Moreover, the bank says there may be beneficial changes in store from French regulators. “Part of the C+ decline has reflected the restrictive regulations imposed on C+ since 2005. Our regulatory discussions have revealed a surprising willingness to relax these conditions. This could permit C+ to be more selective with ISPs & secure better terms for carriage, better leverage StudioCanal and resurrect the aborted BeIN Sport deal. We understand that an initial conclusion document will be issued at end March 2017 with a final decision due on June 23rd.”

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