Air Slump And Digital Woes Will Burden Operations Yet Rebound

Key Takeaways

• Heavy reliance on travel retail exposes Lagardère to shifting travel behaviors and vulnerability from declines in airport foot traffic and consumer spending.
  
• Digital progress in publishing lags market leaders, with legacy print declines and increased media competition threatening long-term revenue and margin growth.
  
• The company faces long-term risks from digital disruption, travel retail dependence, weak regional publishing, underinvestment, and adverse currency movements, all threatening profitability and growth.

Catalysts

Engages in content publishing, production, and broadcasting content media, entertainment, etc., and distribution of products and services in France, the United Kingdom, the United States, Canada, Spain, and internationally.

• Although Lagardère's Travel Retail segment is well positioned to benefit from the ongoing recovery in global air traffic and has recently secured major concessions like Schiphol Airport, the company remains highly dependent on passenger volumes. A prolonged shift in travel behaviors or renewed travel disruptions could sharply reduce revenue growth and place significant pressure on group earnings.
  
• Despite seeing solid digital growth in publishing, with digital formats accounting for close to 30 percent of revenues in the US and UK, Lagardère's pace of digital innovation may not be sufficient to match digital-native competitors or to offset structural declines in traditional print media, thereby threatening both topline growth and long-term margin improvement.
  
• While strategic expansion and successful M&A (such as the Amsterdam Schiphol joint venture) may add new sources of revenue, these tie-up Lagardère's capital in high-fixed-cost, brick-and-mortar operations, leaving group profitability vulnerable to softening foot traffic at physical locations due to shifts toward e-commerce and changing consumer spending patterns.
  
• Although there has been continued deleveraging, with the group's net debt ratio dropping to near 2 times EBITDA, much of the recent free cash flow improvement stems from cost discipline, one-off government supports, and asset sales. If EBITDA growth were to slow, the capacity to further reduce debt and support shareholder returns may prove limited, affecting future net income and balance sheet strength.
  
• Even as Lagardère's publishing arm sustains a strong backlist and benefits from premium content sales in key markets, ongoing consolidation in the media and publishing sectors may erode bargaining power and increase competition for high-quality intellectual property, ultimately compressing margins and diminishing the scalability of future revenue growth.

Lagardere Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Lagardere compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Lagardere's revenue will grow by 2.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 2.3% today to 1.5% in 3 years time.
• The bearish analysts expect earnings to reach €153.6 million (and earnings per share of €2.61) by about August 2028, down from €212.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 28.7x on those 2028 earnings, up from 13.7x today. This future PE is greater than the current PE for the GB Media industry at 11.4x.
• Analysts expect the number of shares outstanding to grow by 0.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.21%, as per the Simply Wall St company report.

Lagardere Future Earnings Per Share Growth

Risks

• The ongoing decline in digital advertising revenues and shrinking press market, as highlighted by the EBITDA drop at Prisma Media, exposes Lagardère to long-term risks from shifting digital consumption patterns and generative AI, which could erode group-wide revenues and net margins.
  
• Weakness in education publishing, especially in Spain and Mexico, driven by the completion of national curriculum reforms and unfavorable timing, signals structural vulnerability in these regions and could weigh on future revenue growth and recurring earnings.
  
• Lagardère's overexposure to travel retail is accompanied by high sensitivity to changes in air traffic, as seen with the sharp revenue decline in North Asia due to business rationalization and store closures, increasing the group's earnings volatility and pressuring overall operating margins.
  
• The lack of significant planned investment for 2025 in logistics and IT modernization for French publishing operations raises concerns about the company's ability to adapt swiftly to digital disruption, which may negatively impact competitiveness and operating profitability over time.
  
• Currency fluctuations, particularly the weakening of the US dollar versus the euro, present a substantial risk, with management estimating a €100 million negative impact on 2025 revenues and about €10 million on group EBITDA, posing a challenge to maintaining robust earnings and shareholder returns.

Valuation

• The assumed bearish price target for Lagardere is €23.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Lagardere's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €34.5, and the most bearish reporting a price target of just €23.5.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €10.0 billion, earnings will come to €153.6 million, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of €20.5, the bearish analyst price target of €23.5 is 12.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.