Analyst Upgrades Vivendi After Stock Hits Nine-Year Low

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LONDON - Entertainment and telecom conglomerate Vivendi on Wednesday got some support from Jefferies & Co. analyst Will Smith who upgraded his rating on its shares from "hold" to "buy."

He highlighted that the stock has been hitting nine-year lows, cited catalysts and said he now has a €15 ($23.31) target price on the stock.

Smith also chimed in on a recurring debate about the company's asset portfolio, saying he would rather see it sell its Moroccan telecom than video game maker Activision Blizzard.

Vivendi is led by CEO Jean-Bernard Levy.

"With shares slumping to nine year lows, expectations for Vivendi seem despondent," European media and entertainment expert Smith wrote. "Vivendi has been by far the worst performing stock in our coverage universe. Following a profit warning earlier this year, shares have slipped to their lowest levels in nearly a decade and are down 20 percent since the start of the year, a significant underperformance against large cap media peers who are only down, on average, 1.5 percent."

Vivendi's stock can only move higher though, Smith argued. "We see several potential catalysts to drive shareholder value," he said.

Among those catalysts could be a potential divestiture, possible cost cutting programs, a new CEO who will take over French telecom operator SFR as of August and comments from shareholder Vincent that he plans to increase his stake from 1 percent to 4-5 percent.

In terms of deal talk, which has surfaced among Vivendi observers from time to time, Smith said: "Any indication Vivendi is considering a shake-up of the portfolio will likely be viewed favorably by the market, even if only speculation at this point."

After all, "a shake-up at Vivendi is overdue as it is not entirely clear what synergies the group is capturing with its current portfolio of assets," he argued.

A June 22 senior management strategy meeting is likely to review Vivendi's current business portfolio, he said.

Some observers have recently suggested that Vivendi could look at selling some or all of its stock in video game giant Activision Blizzard to boost its stock.

Smith said Maroc Telecom "would be our preferred asset sale, but either would be accretive." Assuming half of proceeds are used to pay down debt with the other half going to share buybacks, a sale of Activision or Maroc would be earnings accretive by 10 percent and 8 percent, respectively, he estimated.

"However, we worry the group would be cutting its flowers and watering its weeds if it sold Activision given it has been a major driver of growth and sacrificing long term growth for short term earnings accretion is unlikely to help drive long term shareholder value," Smith said.

A Vivendi spokesman declined to comment on any plans or possible divestitures the company may consider.