Vivendi: Cautious outlook

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Vivendi, owners of amongst other media assets, the Canal Plus pay-TV operation in France, generated mixed comments in a major report March 27. Investment bankers Morgan Stanley in their note to investors said Vivendi had only modest exposure to the vagaries of the current volatile economic cycle, with just three per cent of its income depending on advertising, for example. That’s the good news. However, the bank’s advice to investors is to be “underweight” with Vivendi stock in their portfolio. Its reasons are that Vivendi seems determined to stay just the way it is – and especially not hiving off any of its assets.

Not that Vivendi has actually been standing still. It hasn’t, as recent investment stakes with players like Maroc Telecom, games outfit Activision-Blizzard and broadband supplier Neuf-Cegetel can demonstrate. However, as the bank bluntly puts it: “Without a specific management driven reason to own the Vivendi entity, the case for the stock is hard to make. Investors attracted by Maroc Telecom, Activision and Neuf Cegetel are able to invest directly in these stocks. France Telecom or Bouygues could act as a proxy for SFR and both are more lowly rated than the EBITDA multiple we use for SFR. This leaves Music, not we suspect a prime reason for investing in Vivendi, and Canal Plus. Canal Plus has a strong growth story but represents just 15% of the value of Vivendi in our sum of the parts.”

As to Vivendi’s key components, Morgan Stanley is more or less happy with Canal Plus’ prospects, suggesting 3.5% growth in 2008 a €542m operating income (based on 3.5% revenue growth to €4.52bn), but sees Vivendi’s music-based revenues falling one per cent to €4.8bn, and leading to flat profits for the division of €626m this year. Vivendi Universal games is forecast to achieve €4.39bn in revenues (and €1.1bn in operating revenue).

Source: Rapid TV News

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