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Universal Music Group, Canal+ boost Vivendi

July 26, 2019

By Chris Forrester

The news that Vivendi has appointed merchant bankers to oversee the sale of its Universal Music Group (UMG) subsidiary means that for Vivendi itself it is time for an upgrade, and a positive one, suggests a research note from Deutsche Bank.

Vivendi’s half-year numbers were impressive: Revenues grew 13.6 per cent, with EBITA up 32.4 per cent y-o-y. The inward cashflow allowed Vivendi to buy in 65.4 million of its own shares for cancellation, equal to 5 per cent of its share capital.

As for Canal Plus Group, its revenues fell 2.2 per cent to €2.518 billion. Revenues from television operations in mainland France declined compared to the first half of 2018 due to the decrease in the global subscriber base, despite additional growth in the number of Canal+ channel subscribers (close to 45,000 over the past 12 months).

The bank says: “The UMG results beat even our expectations. The bears will argue this was boosted by physical releases & touring which will be absent in UMG’s second-half year. Don’t believe it. Look at the release schedule released by Vivendi; the 2H will be far stronger. We are raising our above-consensus forecasts by 5 per cent for this year and 10 percent for next year”.

The bank adds that UMG’s 2H roster of high-profile activity confirms its expectation of a far stronger slate over the next 6 months, including one of the biggest worldwide music acts, Taylor Swift, and major soundtracks from Frozen 2  and The Lion King.

But the bank ads that the cost-cutting at Canal Plus is also worth a look. “Canal+ beat on top-line and EBITA. The up to 20 percent headcount reduction was confirmed at Canal+ and points to a major cost benefit. Bears will flag restructuring costs for this year, but we estimate the one-off at €40 million vs savings of €85 million pa from 2021. We are now 18-19 per cent ahead of consensus on 2020/21.”

“Lastly, there was material progress on the UMG sale process,” said Deutsche Bank. “We had believed a conclusion was unlikely until 1H/2020. But Vivendi confirmed an announcement of a deal within the next 6 months.”

Deutsche Bank mentioned that management specialists PricewaterhouseCoopers is updating the vendor due diligence to reflect 1H results and say that “several contacts have already been established with potential strategic partners.”

Those potential partners/buyers are key. The bank says: “We note strategic partnerships announced over the past 18 months include those with Tencent Music (also a reported bidder for 50 per cent of UMG at €20 billion) for the Abbey Road China initiative and ownership stake as part of the TME IPO, Google/Youtube (remastering of iconic music videos), Lionsgate (on music publishing for TV shows), Disney (on music publishing catalogue), Snapchat (licensing for posts) & Dolby (HD audio).”

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