LONDON (Reuters Breakingviews) - Vivendi still looks like a one-legged stool. The French media conglomerate delivered better than expected revenue in the first half, with signs of a turnaround at troubled TV unit Canal Plus. But music label Universal is doing much of the heavy lifting, while Chairman Vincent Bolloré gets little credit for his integration efforts.
Results released after markets closed on Thursday continued a familiar tune for Vivendi investors. Universal Music Group is enjoying the benefits of a digital-streaming boom thanks to services like Spotify, with revenue hitting almost 1.4 billion euros in the second quarter. That was better than analysts’ forecasts of 1.3 billion euros, and 15 percent higher than in the same period a year earlier after adjusting for currency movements and acquisitions.
Canal Plus, by contrast, is still shrinking, with first-half operating profit down 42 percent. Granted, the 1.3 percent decline in underlying revenue and 5.5 percent fall in adjusted earnings before interest and tax in the second quarter showed signs of improvement. And with two-thirds of new subscribers buying more than just the basic TV package, average revenue per user should rise from 45.3 euros in June.
But Universal still provides most of the good news for Vivendi investors – and that doesn’t look set to change soon. New acquisition Havas last week ditched its target for full-year organic growth due to an advertising slowdown. Shares in affiliate Telecom Italia, meanwhile, are down about 2.6 percent since Reuters reported in July that Chief Executive Flavio Cattaneo would step down after clashing with Vivendi.
Assume Universal is worth 18 billion euros, using Morgan Stanley estimates. Throw in equity stakes in other companies with a value of around 7.7 billion euros and the total is close to Vivendi’s enterprise value of around 27 billion euros based on Friday’s share price. That means Canal Plus and other divisions effectively don’t show up in the share price. A mooted plan to float a stake in Universal might help to reduce the discount, but only at the expense of diluting existing Vivendi investors’ exposure to the most attractive part of the group. Bolloré’s efforts to integrate the different bits of his sprawling empire may eventually pay off, but for now the group is largely firing on one cylinder.