Vivendi (VIVEF.PK) is currently offering a dividend yield of 6.4%. It met the first half revenue outlook and successfully completed its EMI acquisition. The newly-acquired EMI Records will have a major impact on Universal Music Groups' future prospects, especially in North America, and Internationally. The stock is currently trading at cheap valuations (P/S 0.68x) and we believe it has a considerable upside. Therefore, we are giving a buy rating for Vivendi.
Vivendi SA is a global player in mass media and telecommunication. Vivendi is based just outside of Paris, and owns stakes in a large and diverse portfolio of companies. This portfolio of companies includes Media, Music, Publishing, Merchandising, Artist Management etc. The major brands under Vivendi include Canal+ Group, Universal Music Group, GVT, SFR, Activision Blizzard, Marco Telecom and Vivendi Entertainment.
The media giant announced its first half's results at the end of August. The company reported revenues of €14.1 billion, showing a YoY decrease of 1.2%. The primary reason behind this decrease was the poor performance of the SFR segment. SFR contributes more than 40% to the company's revenues, and is suffering from the rise in popularity of Lilad. Lilad has signed up a million customers during the second quarter, taking more than 5% of the total market in less than 6 months, and realized the expectation of attaining 15 percent share in the market. This decline in SFR was partially offset by 19.3% (GVT) and 18.2% (Universal Music Group) increases in revenues. A worrying sign for stakeholders was the significant decrease of 16.5% (reported €1.5 billion) in net income. However, company disclosures indicated that this decrease was due to an increase in taxes. If restructuring charges are not included, the net income goes beyond €2.5 billion. The company met revenue guidance in its first half's results.
The following are some important developments since our last update on Vivendi:
- Positive news for Vivendi investors came out last week when French investment and industrial holding group, Bollore, announced that it would increase its stake in Vivendi to 5%. The French fund currently holds a 4.41% share in the media giant.
- Telecom Italia (TI) announced last month that it was not looking to acquire Vivendi's Brazilian phone unit, Stake. The French conglomerate bought GVT for approximately $4 billion in 2009. The segment saw an increase of 19% in revenues in the first half. Vivendi has been exploring strategic options for GVT, and had hired Rothschild and Deutsche Bank to this end.
- Last week, Vivendi announced that it, and Universal Music Group, had successfully acquired EMI Recorded Music. This acquisition will greatly increase UMG's presence in the North American market by including top selling artists such as The Beatles, Katy Perry, Lady Antebellum and The Beach Boys, among others.
The value of Vivendi's shares have halved in the last five years. This forced the company to review its strategy. The strategic shift includes divestures and possible acquisitions. The company is already looking to place its Brazilian phone unit GVT for sale. The stock is trading at a P/S of 0.7x, as compared to the industry average of 0.85x. The company has a history of paying good dividends. The table below shows that the dividend yield of Vivendi is almost 60% more than the industry average and approx. 100% more than the sector average.
Dividend Yield - 5 Year Avg.
Dividend 5 Year Growth Rate
Despite the terrible situation of the European economy, the company has been able to show 7% revenue CAGR with a steady gross margin of around 50%. We are positive about Vivendi's restructuring efforts; combined with the low valuations and excellent dividend yield Vivendi is a buy. The acquisition of EMI records will greatly increase UMG's ability to increase its influence in North American markets.