VIVHY - Vivendi: Corporate Actions Continue To Be An Overhang On The Stock

2023-05-18 00:38:23 ET

Summary

• VIVHY has demonstrated notable strategic progress, particularly through Canal+'s efforts to aggregate video content.
• Despite the positive developments, the current disconnect in VIVHY's stock price can be attributed to the clearance of the Lagardère deal and the potential takeover by major shareholder Groupe Bolloré.
• I recommend to maintain a hold rating for risk-averse shareholders, but think that investors with more risk appetite should take advantage of price dips to gradually accumulate positions.

Summary

Vivendi ( OTCPK:VIVHY ) share price dipped a little post my previous post and has recovered to the same level. I believe this dynamic does not reflect the positive 1Q23 results that VIVHY posted a couple of weeks ago. Importantly, there has been notable strategic advancement across various fronts within the company. The prominent one, in my opinion, is Canal+ continued effort to aggregate video content, enhancing the platform's offerings and solidifying its position in the market.

These strategic initiatives underscore the company's commitment to diversification, and staying ahead of the curve in the dynamic industries it operates in. That said, despite all these developments, I believe the stock price disconnect is due to the clearance of the Lagardère deal (investors are probably on risk-off mode due to this) and a potential takeover from its major shareholder - Groupe Bolloré.

My recommendation remains the same, a hold rating for risk adverse shareholders and for investors with more risk appetite to gradually accumulate position on price dip to take advantage on the pending corporate actions overhangs.

Corporate actions

Before I get into the underlying performance, I think it make sense to clear the elephant(s) in the room out of the way. With regards to the potential takeover by VIVHY largest shareholder – Groupe Bollore, I see this as upside catalyst (effectively a call option) that would reward shareholders. It seems like there is an increasing possibility for Bollore to initiate a bid on VIVHY given that it is likely to sell its Logistics arm . With the gush of capital into the balance sheet, Bollore will be ready to pull the trigger, anytime. In terms of timing, I would say that the mandatary cancellation of shares would be a trigger point for Bollore, though I do think there are a few ways for Bollore to sidestep being forced into a deal. Nonetheless, it would force Bollore to make a decision, which it might just be sitting on for now. The next pending action is the deal with Lagardere, while I do not have a concrete view on how things will turn out, I am optimistic about the proposal that VIVHY has laid out to regulators (refer to previous post for my thoughts). I still believe the combination of these two business will significantly boost VIVHY revenue and profits (~40+% based on FY22 numbers).

Either way, it seems like the only negatives outcome from these two actions would be a non-bid action, and a failed acquisition (bid don’t go through), and the stock might be hurt a little as special situation investors leave the stock. Post the shakeout, I actually think it will benefit core equity shareholders are they the market will now value the stock based on the business fundamentals.

Fundamentals

VIVHY performed positively across all its segments, in my opinion, albeit Havas came in weaker than expected. Havas grew by only 1.9% organically as a result of a weak North America and the anticipated materialization of project delays in 2H23. Nonetheless, I think it's important to highlight the robust commercial momentum alongside sizable budget gains. The highlight is on Canal+, organic growth for Canal+ was 1.2%, with Pay TV in France increasing by 1.4%, International being roughly flat, and StudioCanal increasing by 9.1%. Regarding Canal+, I think things are starting to look up, and I'm optimistic about the future of the service.

To put things into perspective, more than 60% of VIVHY's total subscriber base comes from markets outside of France, and the company added 1.8 million subscribers in 2022, an increase over 2021. This shows that VIVHY's popularity is growing and extends beyond its home country of France and that the service's content has found an audience in other countries, which diversifies the revenue base. Management is also making progress in terms of quality as it promotes this area. Especially noteworthy is the multi-year strategic partnership between Canal+ and Apple. As a result of this agreement, Canal+ customers in France and Switzerland will receive a free subscription to Apple TV+. In my opinion, the inclusion of Apple TV+ as part of a free bundle will positively impact Canal+'s ability to maintain and expand its subscriber base in continental Europe. That said, I believe there will not much impact to margins as I expect Apple to exert significant negotiation power in the contract discussion. Nonetheless, the qualitative gain from this contract speaks well of Canal+ reputation in the market and reach (which Apple recognizes).

Conclusion

Fundamentally, VIVHY has made significant strategic advancements, particularly in the aggregation of video content by Canal+, which strengthens its market position and enhances its offerings. However, I believe the current disconnect in the stock price can be attributed to the clearance of the Lagardère deal and the potential takeover by major shareholder Groupe Bolloré – which I expect these corporate actions to be upside catalyst for the stock. As such, I reiterate my recommendation for a hold rating for risk-averse shareholders and suggest gradually accumulating positions during price dips to take advantage of the pending corporate actions.

For further details see: