vendredi 26 avril 2013

Vivendi 2012 annual results update

I already wrote about Vivendi several times :

in sept 2011 : here
updated mid 2012 : here

Vivendi published its 2012 annual results recently, so it's time for an update.
Besides some people apparently arrive on this blog after a google search on "vivendi value" so I feel more or less compelled to update.
However, if you look for a clear-cut investment thesis and a strong conviction, you'll not find it there, so you may want to skip this post in that case.


Vivendi 2012 annual result presentation is here.
You'd never know casually looking at the slides that earnings are down a whooping 94 % (see for instance slide #3 all those nice green check boxes).
I also love the expression "maximize SFR value". What is that supposed to mean ?

SFR CEO Frank Esser was fired in 2012 and Vivendi CEO Mr Levy himself stepped down mid 2012.
Both have left with 3.9 m€ golden parachute as disclosed in the financial report (note 25 Transaction with related parties).

Remember also that the dividend was cut in half last year and not restored since.

Now that I've vented some of my bitterness, I'll try to decide rationally what to do.

What happened ?

The reality (as I see it) is that SFR (mobile phone branch of Vivendi) margins have been steamrolled by the competition with Free (ticker : ILD). Free mobile has gained 5.2 million new clients in just one year. SFR had to lower its prices and create low-cost offers to stabilize its customer base. Same thing has happened to the telecom branch of Bouygues.

According to rumors, Vivendi is currently looking for a new CEO for SFR (5 managers in 5 years), a pretty good indication of the current malaise (I might as well use a French word from time to time).

Here is a graph with the stock price of Free (ILD) vs Vivendi (VIV) for the last 5 years, that speaks for itself.

If I take my personal example, I left SFR for Free mobile in 2011. As I previously explained, my bill went from 14.9 € to 2 € for 1 hour (enough for my needs).
Early 2013 Free mobile upgraded me from 1 to 2 hours, for the same 2 € ! A striking example of a 50% price deflation in stark contrast with other goods/services around me.

I'm a Vivendi client for my ADSL connection. They offered me spontaneously a 10% rebate on my monthly fee, as a loyalty bonus.

Mutliply that by a few million clients and obviously this is not good for the bottom line.

2012 financial results

Updated graph

CA = Chiffres d'Affaires = Sales
ROP = Operational Result

I don't take into account the adjusted EBIT published by Vivendi, which is always higher.

FCF = CFO (cash flow from operations) - CAPEX
LT debt = long term financial debt

Flat sales, margins are down, FCF down (heavy investments). Only positive aspect I see is LT debt is -at last- stabilized.
EV/current EBIT ~13, hardly cheap.

The net result is impacted by provisions and depreciations.
Equity is around 20 bn€, and goodwill around 25 bn€, so there are many "opportunities" for further depreciations in the future.
Sure enough, it's a non-cash loss, but I think it is misleading : see this link.

Analysis of a screw up

Can I reasonnably assess the "earnings" power of VIV ? Not really.

I can't predict the evolution of the telco industry in France (and the arrival of Free did significantly change the landscape).
Seems like operators are betting on the arrival of the 4G standard  to restore their margins, but large invesments are required and imho there's no guaranty hat a new price war will not resume after a few months.

This post (value and opportunity blog) clarifies (I think) the kind of mistake I made. I bought VIV in 2011 because it looked cosmetically cheap (based on recent past earnings) but without really understanding why. Obviously this is more difficult for a large company operating in different sectors, subject to relatively rapid changes.

To compound this, VIV is a large cap followed by many professional investors, so I have obviously no informational or analytical edge.

Insider trading

Insider trades taken from the AMF website, superposed on the graph of VIV stock.
Blue = buys
Red = Sells
Amonts in € (logarithmic scale).
I see no clear correlation here (ie no heavy buying at bottoms, no heavy selling either). Anyway nothing but buys since end 2010.
A recent significant buy from Bollore (800 k€ in march 2013) who as has a reputation of a shrewd operator. Also and maybe related, a recent operation by Bollore that I don't quite understand :
Bollore is borrowing 310 m€ using 17 millon Vivendi shares as collateral (so ~18.2 €/share) ?
What does it mean for Vivendi ?

Sum of parts analysis

Here is my own crude version.
Every professional analyst who follows VIV has probably a much more refined one, so I won't fool myself about any superior insight, but at least it gives me a rough idea.
All figures in m€.

Some subsdiaries (Activision, Maroc Telecom) of Vivendi are listed, so I just use the market cap (at the time the article was written).

Vivendi recently tried to sell GVT but no deal. I use for my valuation the highest rumored bid : around 6 €bn.

For SFR I used a simple comparison (EV/Sales ratio) with Belgacom, another telco (listed in Brussels) I happen to follow and France Telecom. I used the lowest valuation of the two.

For Canal+, EV/Sales comparison with M6 (ticker MMT), a French TV company I follow (I own a few MMT shares). Sure it's not the same business model (Canal+ is pay TV), but I wonder if/how he arrival of Netflix (not yet, but bound to happen sooner or later ?) on this market will impact C+.

For Universal media group, I just applied the same EV/EBITDA ratio of 7 (the same as the UMG/EMI deal) and slapped a 20 % discount on this, just in case UMG overpaid for the deal.

I substract the net debt and divide by the diluted number of shares.

I get ~20€/share for this sum of parts valuation.
In this article, the consensus average valuation was 19.35 €, a good agreement, but difficult to know if it's just a coincidence, without access to the analysts notes. In this article (in French), Soc Gen sum of parts valuation is 22 €.

Anyway  the current quote (~17 €) is a 15 % discount to 20 € which does not seem so large to me (I have in mind a 20-30 % "usual" holding discount here).


As I said, I have no edge here.
No obvious under evaluation.
No trust for management.
No hurry to sell either because of the discount to sum-of-parts analysis.
Vivendi has announced recently that it has received two offers for the sale of Maroc Telecom and the stock went up as a result.
I've sold part of my position at 17 € and will continue to do so when (if) the stock goes up. Otherwise no move.