Vivendi (VIVHY.PK) combines the world leader in video games (Activision Blizzard), the world leader in music (Universal Music Group), the French leader in alternative telecommunications (SFR), the Morrocan leader in telecoms (Maroc Telecom), the leading alternative broadband operator in Brazil (GVT), and the French leader in pay-TV (Canal+ Group). The previous information was taken from its website. I will get to further descriptions of the subsidiaries later.
I have used two different valuation techniques for Vivendi. The first is an asset reproduction valuation done on 4-2-2012. All numbers are in millions of euros unless otherwise noted, except the per share numbers. Valuations were done using 2011 10-k..
These valuations are done by me, using my estimates, and they are not a recommendation for you to buy the stock. DO YOUR OWN HOMEWORK.
Accounts Receivable (net)
Deferred Taxes-Tax Liability
Total Current Assets
- Number of shares 1,242 million.
- With IA: 53,927/1,242=43.42 euros per share = $57.40 per share
- Without IA: 47,113/1,242=37.93 euros per share = $50.14 per share
- With IA 32,169.5/1,242= 24.90 euros per share = $34.24 per share
- Without IA 28,762.5/1,242= 23.16 euros per share = $30.62 per share
Current share price on 4-21-2012 = $16.50 per share
Sum of the parts valuations done on 4-26-2012 all numbers in millions of euros unless otherwise noted, except per share data.
- 44% of SFR bought in 2011 for 7,750 euros. Implied value of total stake since Vivendi now owns 100% of SFR = 17,360 euros
- 60% of Activision (ATVI) =6,587 euros
- 100% of SFR + 60% of ATVI =23,947 euros = $31,629 million
Vivendi has a total market cap currently of $23.46 billion
You are getting most of the 60% of ATVI, all of GVT, all of Canal+, all of UMG, 53% of Maroc Telecom, which equals 5.41 billion Euros, all cash and debt for free, just by the purchasing part of ATVI and all of SFR. GVT, Canal+, UMG, and Maroc Telecom are the rest of their subsidiaries whose operations will be described later.
Valuing the whole of Vivendi, cash, and debt using my above estimates, I am estimating a very conservative 40 Billion euros, which equals $53.832 billion of total value for Vivendi.
- $53.832 billion/number of shares at full dilution of 1.250 billion= $43.07 per share
- Current share price = $18.60 per share
This valuation would be used if it were to do a spin-off or selling some of its assets and companies.
The reproduction valuation is generally the most conservative intrinsic value estimate and the one I use the most since I am very conservative and want the biggest margin of safety as possible.
Some other things I like about Vivendi besides the massive margin of safety are: It pays a healthy yearly dividend, has consistent free cash flow of at least 3 billion euros per year after cap ex, very good margins, cash and cash equivalents of over 3 billion euros, and it also has net operating loss carry forwards of around 8 billion euros.
Seth Klarman owns shares of Vivendi at his hedge fund Baupost Group, and has been buying more recently. I actually got lucky and bought shares of VIVHY at a cheaper price than Klarman. Also the management of Vivendi is reviewing what it could do to unlock the value that is missing right now, by its own estimates at least 40%.
Risks: A lot of debt and continual huge amounts of cap ex in the telecom subsidiaries. The continuing European debt issues, with most of its business being done in Europe, specifically France. If it decides not to do a spin-off or asset sale it could take a while to unlock value, which would not bother me since it would enable me to acquire more shares.
I would like it to eventually do some kind of spin-off or asset sale to pay down its debt, which should also increase the share price. I would not mind if it cancelled the dividend for a year or two to pay down debt either.
I have been hearing these rumors for a month or so now and am just waiting for the meeting on June 22nd to see what it has decided or not decided to do.
Description of subsidiaries:
Activision Blizzard description - World's biggest video game company, and in my opinion has the best overall portfolio of games in the entire industry. Call of Duty, Skylanders, Diablo, Starcraft, World of Warcraft, among others are included in the portfolio. This is the asset that I think would make the most sense to sell or spin off.
Call of Duty produces over $1 billion of revenue by itself with every game produced, which comes out once a year usually in November.
However, most of these franchises have either just come out with games or are past their prime in my opinion. World of Warcraft, while still a cash cow, is gushing subscription members every month, and Blizzard has already started to move resources into the next MMORPG, which has no release date. Diablo III just came out so I don't expect another game in that series for a while. Call of Duty, while still producing huge revenue and profits, is at its peak in my opinion and can only go down from here. The development studio that makes the Call of Duty series has also been fighting with and losing a lot of team members over the last several years, which will hurt quality in the future.
I also see the entire console video game industry in a decline as well. You can only keep asking people to pay more for less for so long before they decide to stop buying games and consoles, especially with cheaper games coming out either free to play or for under $10 on tablets and phones.
The next generation of gaming systems is going to start coming out later in 2012. That is generally a bad thing for game publishers because of higher development costs and lower profitability. Thus another reason it should sell before the new consoles start coming out.
In my opinion now would be the perfect time to sell ATVI. Vivendi will likely never be able to get a higher price than now due to the above. The only problem would be finding someone big enough to buy.
GVT description - A fixed phone line and internet telecom with operations in Brazil that Vivendi recently bought. GVT has great growth potential but will cost a lot in the short term due to high amounts of cap ex in the telecom industry. Should be one of the better Vivendi holdings over the long term though as the margins are currently very good. My main concern with this one is that Vivendi over paid for it so it will take longer to recoup the initial investment. Also being in Brazil, you never know what company might be expropriated by the governments in South America.
Maroc Telecom description (MAOTF.PK) - Maroc Telecom is a mobile/internet/fixed line phone company with most of its business in Morocco. It has the same problem with cap ex as GVT above, especially since it is going to be transitioning into 3G coverage from 2G. That could eventually pay off however due to more data plan subscriptions from the smartphones that will run 3G. Maroc has also been having problems with the government in Morocco as it has been having to cut phone rates, thus losing out on revenue and lowering margins.
Canal+ description - A pay TV/cinema company with operations mainly in France. Canal+ is another asset I could see the company spinning off or selling because it currently owns 80% of Canal+ France and has been trying to buy the remaining 20% to no avail, which could lead it to sell its portion of it. It does own the rights to show Ligue 1 soccer matches and UEFA Champions League matches in France, which is a major advantage.
Universal Music Group description - Biggest owner of music and music publishing rights in the world. UMG produces the lowest EBITDA and CFFO margin of the entire group. Also doesn't seem to fit the profile of the rest of the subsidiaries, which might lead this to being sold. However, it owns the rights to music from the likes of: Rihanna, Lady Gaga, Justin Bieber, Eminem, Taylor Swift and various other major music artists. The music industry could also see a comeback to higher profitability with things like ITunes, Pandora and Spotify though if it can figure out how to monetize the publishing rights properly.
Description of SFR - A mobile/fixed phone/internet telecom with operations mostly in France. Currently Vivendi's biggest revenue generator, and probably the most important to the group's success in the future. SFR is currently facing some headwinds in France, having to cut rates, which are lowering margins. SFR is also facing new, tougher and cheaper competition in its market, which is currently lowering margins and causing a loss of subscribers. It is also losing some business due to the difficulties of the European economy and the loss of discretionary income by some individuals. Vivendi recently bought out the remaining 44% of SFR from Vodafone, which in my opinion it overpaid for, but should hopefully pay off in the future when and if SFR's operations turn around.
Disclosure: I am long VIVHY.PK.