Vivendi SA (VIV, Financial)(current price: $15.98) is a French multination telecommunication company headquartered in Paràs. It is one of the few multimedia groups in the world to operate across the entire digital value chain. Currently operates a number of companies that are leaders in content, media and telecommunications.
Content and Media
Resume of Financial Description of the Whole Company:
Net debt is 5 times free cash flow, and it is reducing debt over the past four years.
Management
Management is focused on creating shareholder value and eliminating the discount of their shares. They are in the middle of a restructuring process. Here is the descriptions from Morningstar:
“Following a long and complicated history as a conglomerate, Vivendi has emerged with a solid set of assets, and many of its businesses enjoy sustainable competitive advantages, in our opinion. Management has announced it is looking at all options in order to reduce the discount at which the company's stock trades in relation to those assets.”
On July 23 I read that Vivendi entered exclusive talks to sell control of African phone operator Maroc Telecom to Emirates Telecommunications Corp. for €4.2 billion plus debt. I realized that I could have enough information to valuate the different business separately, and later on we could compare it with the market cap.
The market cap of Vivendi is €22.1 billion.
Valuing each business:
- Activision: Current Market Cap = USD7 billion, or about €13 billion. Vivendi has 61.5% of the shares, about €8 billion for the company.
- Maroc Telecom: Vivendi is selling the company for €4.2 billion plus debt. These are the numbers for the last three years:
In conclusion, the company is selling at least for 4 times cash flow.
- SFR: (Vivendi owns 100% of the company) Managers said that this company is the next in line for restructure. Maybe it could be a spinoff or a sale. The importance rests on having a conservative attitude towards its numbers to valuate. This can be explained because we want to know how much (of the whole company) we have for the businesses that the managers have interest in. Here the numbers:
We can see that the company generates stable fee cash flows, but in the last year expended $1 billion more capital compared with previous years. For conservative numbers I am going to take FCF for the last year and the ratio of Maroc (4 times) which is extremely conservative. I like wide margins of safety.
So we could value SFR at about €3 billion.
Resume for the last: (€21.2 billion) Market cap – €8 billion (Activision) – €4.2 (Maroc) – €3 billion (SFR) = €6 billion
€6 billion for practically three businesses: Canal+, UMG and GVT. And these businesses are those which the management has interest in.
Canal +: (Vivendi owns 100% of the company)
This is a stable company that generates strong free cash flow and the subscriptions has been growing 5% per years for the last five years.
Canal + is “France’s leading Pay-TV channel and Europe’s largest producer and distributor of filmes.” Without a shade of a doubt it is an important company that has competitive advantages like brand and economies of scale.
UMG: (Vivendi owns 100% of the company)
It’s an important company, and leader in its industry.
And the numbers:
It is a stable company that generates strong FCF and has competitive advantages: a strong brand that makes artists feel confident with the company (we can see this in their clients: Madonna, Rihanna, Lmfo,Justin Bieber, etc).
GVT:(Vivendi owns 100% of the company)
It’s a growth company that generates net income. The company is investing a lot of capital so it is very difficult to take the maintaining capex, so we take net income.
We see that is a growth company and its revenues are growing at 42%, net income at 48%, lines services at 48% per year. It has a strong position in Brazil and strong competitive advantages like economies of scale and brand.
Conclusion
We found it easy to valuate the three first businesses, and we followed the philosophy of maintaining conservative numbers. And we have €6 billion left for the last three business.
Canal+ and UMG are leaders in their markets and generate strong FCF. On the other hand we have GVT which is a growing company. If we sum up FCF of the two first companies and the net income of GVT we have earnings of about €1.250 billion (€476 million + €472 million + €300 million). For being ultraconservatives we can valuate these companies at 10 times earnings and we have a market cap of €12 billion, double what Mr. Market currently values these companies at.
We have a margin of safety of 50% being ultraconservative. Everyone knows that SFR doesn’t value 4 times FCF, and Canal +, UMG and GVT, don´t value 10 times earnings and cash flows. We can valuate these companies in wider earnings.
Dividend yield aprox: 6%, The company has been paid aprox €1200 M to € 1700 M in dividends each year for the last 3 years and generate € 2500 M in FCF. I think is enough margin of safety and excelent dividend return.
Content and Media
- Canal+ Group, France’s leading Pay-TV channel and Europe’s largest producer and distributor of films.
- Universal Music Group (UMG), the world’s leading music company, operating in about 60 countries and with a catalog of more than 2 million titles.
- Activision Blizzard, the world leader in video games, with franchises played the world over, including Call of Duty, Skylanders and World of Warcraft.
- SFR, the No. 1 alternative telecommunications operator in France and Europe.
- Maroc Telecom, the No. 1 fixed-line and mobile telecommunications operator in Morocco, also operating in Burkina Faso, Gabon, Mauritania and Mali.
- GVT, the No. 1 alternative telecommunications operator in Brazil, with a high-performance broadband network and new generation services in ï¬xed-line telephony, Internet and Pay-TV.
Resume of Financial Description of the Whole Company:
| (€M) | 2012 | 2011 | 2010 | 2009 |
| Revenues | 28994 | 28813 | 28878 | 27132 |
| FCF | 2590 | 3495 | 3529 | 4704 |
| (€ Millons) | 2012 | 2011 | 2010 | 2009 |
| Net debt | 13,118 | 13,455 | 14,941 | 14,054 |
Net debt is 5 times free cash flow, and it is reducing debt over the past four years.
Management
Management is focused on creating shareholder value and eliminating the discount of their shares. They are in the middle of a restructuring process. Here is the descriptions from Morningstar:
“Following a long and complicated history as a conglomerate, Vivendi has emerged with a solid set of assets, and many of its businesses enjoy sustainable competitive advantages, in our opinion. Management has announced it is looking at all options in order to reduce the discount at which the company's stock trades in relation to those assets.”
On July 23 I read that Vivendi entered exclusive talks to sell control of African phone operator Maroc Telecom to Emirates Telecommunications Corp. for €4.2 billion plus debt. I realized that I could have enough information to valuate the different business separately, and later on we could compare it with the market cap.
The market cap of Vivendi is €22.1 billion.
Valuing each business:
- Activision: Current Market Cap = USD7 billion, or about €13 billion. Vivendi has 61.5% of the shares, about €8 billion for the company.
- Maroc Telecom: Vivendi is selling the company for €4.2 billion plus debt. These are the numbers for the last three years:
| (€ M) | 2012 | 2011 | 2010 |
| Revenues | 2689 | 2739 | 2835 |
| FCF | 1066 | 1035 | 1150 |
In conclusion, the company is selling at least for 4 times cash flow.
- SFR: (Vivendi owns 100% of the company) Managers said that this company is the next in line for restructure. Maybe it could be a spinoff or a sale. The importance rests on having a conservative attitude towards its numbers to valuate. This can be explained because we want to know how much (of the whole company) we have for the businesses that the managers have interest in. Here the numbers:
| (€ M) | 2012 | 2011 | 2010 | 2009 | 2008 |
| Revenues | 11288 | 12183 | 12577 | 12425 | 11553 |
| FCF | 693 | 2032 | 1978 | 2263 | 2752 |
| Cap ex | 2736 | 1800 | 1974 | 1700 | 1305 |
We can see that the company generates stable fee cash flows, but in the last year expended $1 billion more capital compared with previous years. For conservative numbers I am going to take FCF for the last year and the ratio of Maroc (4 times) which is extremely conservative. I like wide margins of safety.
So we could value SFR at about €3 billion.
Resume for the last: (€21.2 billion) Market cap – €8 billion (Activision) – €4.2 (Maroc) – €3 billion (SFR) = €6 billion
€6 billion for practically three businesses: Canal+, UMG and GVT. And these businesses are those which the management has interest in.
Canal +: (Vivendi owns 100% of the company)
This is a stable company that generates strong free cash flow and the subscriptions has been growing 5% per years for the last five years.
| (€ M) | 2012 | 2011 | 2010 | 2009 | 2008 |
| Revenues | 5013 | 4857 | 4712 | 4553 | 4554 |
| FCF | 476 | 484 | 410 | 328 | 383 |
| Subscriptors | 14,254 | 12,946 | 12,709 | 12,471 | 11,974 |
Canal + is “France’s leading Pay-TV channel and Europe’s largest producer and distributor of filmes.” Without a shade of a doubt it is an important company that has competitive advantages like brand and economies of scale.
UMG: (Vivendi owns 100% of the company)
It’s an important company, and leader in its industry.
And the numbers:
| (€ M) | 2012 | 2011 | 2010 | 2009 | 2008 |
| Revenues | 4544 | 4197 | 4449 | 4363 | 4650 |
| FCF | 472 | 443 | 470 | 309 | 521 |
It is a stable company that generates strong FCF and has competitive advantages: a strong brand that makes artists feel confident with the company (we can see this in their clients: Madonna, Rihanna, Lmfo,Justin Bieber, etc).
GVT:(Vivendi owns 100% of the company)
It’s a growth company that generates net income. The company is investing a lot of capital so it is very difficult to take the maintaining capex, so we take net income.
| (€ M) | 2012 | 2011 | 2010 | 2011 | 2009 |
| Revenues | 1716 | 1446 | 1029 | 571 | 443 |
| Net Income | 300 | 240 | 166 | 85 | 66 |
| Nro. the lines services | 9075 | 6358 | 4232 | 2817 | 1901 |
We see that is a growth company and its revenues are growing at 42%, net income at 48%, lines services at 48% per year. It has a strong position in Brazil and strong competitive advantages like economies of scale and brand.
Conclusion
We found it easy to valuate the three first businesses, and we followed the philosophy of maintaining conservative numbers. And we have €6 billion left for the last three business.
Canal+ and UMG are leaders in their markets and generate strong FCF. On the other hand we have GVT which is a growing company. If we sum up FCF of the two first companies and the net income of GVT we have earnings of about €1.250 billion (€476 million + €472 million + €300 million). For being ultraconservatives we can valuate these companies at 10 times earnings and we have a market cap of €12 billion, double what Mr. Market currently values these companies at.
We have a margin of safety of 50% being ultraconservative. Everyone knows that SFR doesn’t value 4 times FCF, and Canal +, UMG and GVT, don´t value 10 times earnings and cash flows. We can valuate these companies in wider earnings.
Dividend yield aprox: 6%, The company has been paid aprox €1200 M to € 1700 M in dividends each year for the last 3 years and generate € 2500 M in FCF. I think is enough margin of safety and excelent dividend return.
