Focusing On Listed Investments And Cost Management At Gameloft Will Unlock Future Value For Stakeholders

Key Takeaways

• Transformation and restructuring through asset spin-offs aim to unlock value, enhancing revenue and earnings as Vivendi focuses on listed investments.
  
• Cost management and strategic growth plans in video games suggest improved margins, future revenue, and earnings increases.
  
• Vivendi's financial strain is marked by a significant net loss, negative EBITDA, and high debt, coupled with declining revenues in key assets and uncertainty in strategic investments.

Catalysts

Operates as an entertainment, media, and communication company in France, the rest of Europe, the Americas, Asia/Oceania, and Africa.

• Vivendi's ongoing transformation and restructuring, including the spin-off of major assets, are expected to unlock value for stakeholders and could lead to future revenue and earnings growth as the company focuses more dynamically on its portfolio of listed investments.
  
• The exceptional performance of newly listed entities like Havas and Louis Hachette and their potential synergies are likely to enhance revenue streams and net margins in the future.
  
• Vivendi's cost management strategy, demonstrated by cost reductions and streamlined operations at Gameloft, is expected to improve net margins and bolster earnings as the company continues to focus on efficiency.
  
• The strategic plan to generate organic growth and potentially pursue bolt-on acquisitions in the video games sector with Gameloft suggests future revenue and earnings increases.
  
• A clear intention to exit investments such as Telecom Italia indicates potential cash inflows and capital reallocation opportunities, which could positively impact earnings and financial flexibility.

Vivendi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vivendi's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -99.3% today to 43.2% in 3 years time.
• Analysts expect earnings to reach €145.0 million (and earnings per share of €0.14) by about March 2028, up from €-295.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, up from -9.2x today. This future PE is greater than the current PE for the GB Entertainment industry at 10.8x.
• Analysts expect the number of shares outstanding to decline by 1.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.82%, as per the Simply Wall St company report.

Vivendi Future Earnings Per Share Growth

Risks

• The revenue from Gameloft, a key operational asset, has decreased by 5.7% from 2023 to 2024, which could signal challenges in maintaining its revenue growth trajectory.
  
• Vivendi incurred a substantial net loss of €6.004 billion in 2024, largely due to fair value adjustments related to the spin-off assets, affecting its overall earnings significantly.
  
• The company maintains a negative EBITDA, with €333 million in the last reported period, which suggests potential issues with operating efficiency and profitability.
  
• Vivendi's debt position remains high, with a net debt of €2.072 billion, leading to a loan-to-value ratio of 30%, which could strain financial flexibility and result in increased interest expenses.
  
• There is uncertainty around Vivendi's stakes in investments like Telecom Italia, where Vivendi intends to sell its stake, potentially impacting future asset valuations and revenue streams.

Valuation

• The analysts have a consensus price target of €3.014 for Vivendi based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €3.7, and the most bearish reporting a price target of just €2.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €335.7 million, earnings will come to €145.0 million, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 10.8%.
• Given the current share price of €2.75, the analyst price target of €3.01 is 8.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.