African Expansion And Proprietary Content Will Drive Long-Term Earnings Recovery

Catalysts

About Canal+

Canal+ is a global media and entertainment group focused on pay TV, streaming, and content production and distribution across Europe, Africa and Asia.

What are the underlying business or industry changes driving this perspective?

• Scaling into high growth African markets through the MultiChoice acquisition, combined with Canal+ long operating track record on the continent, should expand the subscriber base and support sustained revenue growth and operating leverage over time.
• Accelerating investment in proprietary IP through STUDIOCANAL, including global franchises and recurring series, is likely to deepen content monetization across cinema, TV and streaming windows, supporting higher margins and more resilient earnings.
• Super aggregation of major streaming platforms in Europe and now French speaking Africa, together with enhanced Canal+ app experiences on mobiles, connected TVs, cars and airlines, should improve customer lifetime value and underpin medium term subscription and advertising revenue growth.
• Structural cost resets in Europe, including the exit from expensive sports and noncore channels and the French redundancy plan, are expected to structurally lower content and operating costs, driving EBITDA margin expansion and stronger net income.
• Rapid improvement in cash generation, disciplined contract repricing and near breakeven performance at GVA and Dailymotion, alongside oversubscribed long term funding, indicate a shift to a more cash generative model that can compound free cash flow and de risk future earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Canal+'s revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.6% today to 5.7% in 3 years time.
• Analysts expect earnings to reach €475.9 million (and earnings per share of €0.51) by about December 2028, up from €-100.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €701.5 million in earnings, and the most bearish expecting €414.6 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, up from -27.4x today. This future PE is lower than the current PE for the GB Media industry at 14.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The shift away from major premium sports rights in Europe, including the end of Ligue 1 and uncertainty around future Champions League renewals, may weaken Canal plus value proposition versus global streamers and domestic broadcasters over time, which could pressure subscriber growth and lead to slower revenue expansion and softer net margins in mature markets.
• Execution and integration risk around the large MultiChoice acquisition and other minority stakes such as Viaplay and Viu could delay or dilute expected synergies. Additional upfront sports and content commitments in Africa and Asia may push costs higher than planned, weighing on EBITDA trajectory and long term earnings growth.
• Exposure to structurally challenging markets, notably Vietnam and some African territories with volatile macro conditions, low broadband and electrification and fragile advertising demand, may result in ongoing subscriber declines or restructuring exits. This could create revenue headwinds and potential write downs that drag on earnings.
• The current step change in cash generation is partly driven by working capital optimization, contract prepayment reversal and other one off timing benefits that are unlikely to repeat. As a result, free cash flow could normalize at a lower level after 2025, reducing deleveraging capacity and financial flexibility and limiting support for higher valuation multiples.
• Persistent tax and regulatory uncertainty, including unresolved VAT disputes and high effective tax rates well above weighted country averages, together with evolving media rules in Europe and Africa, may lead to higher structural tax charges or adverse rulings. This would constrain net income growth and depress earnings per share over the medium term.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of £3.44 for Canal+ 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 £3.9, and the most bearish reporting a price target of just £2.8.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €8.3 billion, earnings will come to €475.9 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of £2.46, the analyst price target of £3.44 is 28.7% 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.