Fragmented Portfolio And Rising Compliance Costs Will Erode Future Prospects

Key Takeaways

• Loss of key assets leaves Vivendi with limited control over earnings and little ability to drive organic revenue growth.
  
• Intensifying industry competition, tightened regulations, and risky acquisition strategies threaten profitability and future cash flow stability.
  
• Focused cost management, disciplined capital allocation, and active portfolio optimization position Vivendi to expand margins, enhance shareholder returns, and benefit from digital media growth trends.

Catalysts

Operates in the content, media, and entertainment industries in France, rest of Europe, the Americas, Asia/Oceania, and Africa.

• Vivendi's diminished operational scope after the spin-off of Canal+, Havas, and Louis Hachette Group leaves the company with a fragmented portfolio focused largely on minority stakes in listed entities and a single operating asset, Gameloft. This structure significantly reduces its ability to drive organic revenue growth and exposes future earnings to unpredictable results from holdings over which it lacks operational control.
  
• The accelerating fragmentation and democratization of digital content are placing enduring pressure on Vivendi's ability to monetize intellectual property. With traditional conglomerates losing pricing power across content distribution, Vivendi faces declining net margins as competition intensifies from digitally native and global players.
  
• Escalating regulatory scrutiny and tightening data privacy laws, particularly in Europe, are likely to drive up compliance costs and create operational inflexibility. These headwinds threaten to erode profitability, especially as the company's key assets are exposed to some of the most tightly regulated media markets globally.
  
• There is significant risk of capital misallocation as Vivendi seeks growth through new bolt-on acquisitions or investments in adjacent sectors to compensate for its weakened core. Overpaying or integration failures would further depress group net earnings and lower return on invested capital over the medium to long term.
  
• With the persistent shift away from linear television and reliance on legacy distribution models, outstanding stakes such as Telecom Italia may become increasingly difficult to monetize at favorable valuations, resulting in lower cash flow visibility and little support for sustainable dividend growth.

Vivendi Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Vivendi compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Vivendi's revenue will decrease by 0.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -99.3% today to 65.9% in 3 years time.
• The bearish analysts expect earnings to reach €198.4 million (and earnings per share of €0.09) by about July 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 price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.5x on those 2028 earnings, up from -11.9x today. This future PE is lower than the current PE for the GB Entertainment industry at 58.3x.
• 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 9.47%, as per the Simply Wall St company report.

Vivendi Future Earnings Per Share Growth

Risks

• The management's track record of cost discipline, as evidenced by Gameloft improving EBITDA despite revenue decline and a focused plan to further reduce corporate costs after the spin-off, suggests potential for margin expansion and improved net earnings over the long term.
  
• Vivendi's active management of its listed investment portfolio-including strategic stakes in Universal Music Group, Banijay, Telecom Italia, and Lagardère-offers exposure to diversified, global growth businesses, which could enhance asset value and drive steady increases in net asset value per share.
  
• Strong capital allocation discipline is shown through recent divestments, share buybacks, and maintaining a moderate loan-to-value ratio of 30%, all of which may support shareholder returns and potentially lead to higher share price valuations over time.
  
• Leadership's commitment to transforming operational assets like Gameloft into growth platforms, along with openness to bolt-on acquisitions, enables Vivendi to benefit from long-term secular trends in digital content consumption and gaming, which may drive sustained revenue and margin growth.
  
• The company's proactive approach to portfolio streamlining, including seeking a strategic exit from the Telecom Italia stake and redeploying capital, positions Vivendi to reduce exposure to underperforming assets and reinvest for higher returns, enhancing long-term earnings and value creation.

Valuation

• The assumed bearish price target for Vivendi is €2.8, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Vivendi'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 €4.2, and the most bearish reporting a price target of just €2.8.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €301.1 million, earnings will come to €198.4 million, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 9.5%.
• Given the current share price of €3.53, the bearish analyst price target of €2.8 is 26.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.