Vivendi Analysts See Stock Upside for Split Media, Telecom Businesses

6:04 AM PST 11/27/2013 by Georg Szalai
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Industry observers also discuss planned management changes and possible deals after the French conglomerate confirmed plans to create two separate companies in mid-2014.

LONDON – Analysts on Wednesday lauded Vivendi's decision to move ahead with a split that would separate the company's media and telecom businesses.

Late Tuesday, the French conglomerate had announced that its board would seek shareholder approval for the split, similar to recent moves by Time Warner and CBS Corp. as well as the split of Rupert Murdoch's empire into a publishing and an entertainment business. The separation is expected to be completed in mid-2014.

The split will separate French telecom arm SFR from the rest of Vivendi. The media assets will be Vivendi Music Group, French pay TV firm Canal Plus and Brazilian broadband firm GVT, which Vivendi previously considered selling.

Vivendi's stock on Wednesday rose slightly as analysts lauded the move, but said investors had mostly expected it. As of 11 a.m. Paris time, Vivendi shares were up 3 percent. At 3 p.m., they were up 1.5 percent at $25.67 (€18.87).

Sanford C. Bernstein analyst Claudio Aspesi told THR that after the Vivendi split, both stocks have upside from potential deals.

SFR "becomes a target as part of the expected consolidation of European telecoms," he said. "For the media business, the (speculative) sources of upside can be the sale of GVT and/or the return to viable growth of the recorded music industry."

Liberum Capital analyst Ian Whittaker said SFR "would be free to pursue a merger with cable operator Numericable" in France, for example. That could benefit its stock after the separation.

With the split looming, he said "we expect Vivendi [shares] to re-rate as investors become more aware of the potential upside and the market realizes the valuation disconnect that Vivendi is valued like a telco but actually has about 50 percent of earnings before interest, taxes, depreciation and amortization coming from media and the faster growing GVT assets."

Whittaker maintained his "buy" rating and 25 euros price target on the stock.

Analysts also discussed planned management changes, including the rise of big shareholder Vincent Bollore to the role of chairman of Vivendi next year and the hiring of Hearst executive Arnaud de Puyfontaine.

UBS analyst Polo Tang predicted that the latter would "effectively become CEO of the future Vivendi." He added: "The majority of his career has been spent in magazines (Emap/Hearst), and while we think he has done a good job in difficult circumstances, he does not have prior experience in either telecoms, music or pay TV. "

Concluded Tang: "Vivendi shares may be supported near-term by lack of bad news and hopes of cash returns/Numericable deal hopes. However, we remain wary of downside risk to SFR estimates."

As a result, he maintained his "neutral" rating and 16 euros price target on the stock.

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai

 

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