mercredi 18 avril 2012

Vivendi update

Apparently Vivendi gets some interest from foreign readers so it's time for an update, and I'll write it directly in English.

Besides today a reader (thank you !) sent me an email pointing out that the Baupost group (Seth Klarman) had taken a position in Vivendi end 2011 and that certainly got my attention because I'm a huge fan.

My original article on Vivendi is here (september 2011).

The stock went up early 2012 and I briefly felt quite pleased with myself, but that didn't last long :

So what happened ?

Arch-competitor Free (ticker : ILD) launched a mobile phone offer, much much cheaper than its competitors (see my post here), and SFR lost many clients (including me).

SFR CEO Frank Esser was fired.

Vivendi CEO, Jean Bernard Levy, sent me (along with several millions other shareholders, that is) a nice letter.
With all due respect to Mr Levy, I found the 3rd point in his letter particulary hilarious :
"It seems to us likely that equity markets will rebound now that financial and monetary turbulence appears to be under control."
Well they teach you a lot of things at the Ecole Polytechnique but I wasn't aware that a crystal ball was part of his kit. It seems to me that the proverbial can got kicked down the road and that very little is under control.

This came after Vivendi cut its dividend from 1.4 to 1 €, despite Mr Levy having declared a few months before (1st HY 2011 earnings) : "We confirm our full year outlook for adjusted net income above €3 billion, and for an increase in the dividend.”.
I'd rather not make additional comments.

2011 results and valuation ratios

I've updated my tables (see previous article) and even made a graph

CA = Chiffres d'Affaires = Sales
ROP = Operational result
RNPG = Resultat Net Part du Groupe = Net Income
I don't take into account the adjusted EBIT published by Vivendi, which is always higher.
Flux activite = Cash flow from operations or operating cash flow
LT debt = long term financial debts

All figures in m€.

Note the ugly run-up in debt.

Some valuation ratios
EV ~ 32 €bn for a last quote of 13 €, using the diluted nb of shares. Given the balance sheet of Vivendi (current liabilities much exceeding current assets) I consider that there is no excess cash, so EV here is market cap + short + long term financial debt.

EV/current ROP = 6
EV/average past 8 years ROP = 8

EV/current FCF = 9
EV/average past 8 years FCF = 9

Current PER = 6
Current yield = 8 %

So yes, the stock appears to be cheap.
But you can easily find small caps that are cheaper and safer (shameless self promotion for the blog).
Why would I pay a premium for a big-cap ? I don't run a hedge fund and do not have the same liquidity issues.

Insider trading

Updated table on insider transactions since 2011 (from the AMF website)

Nothing but buys. But these insiders' timing is about as bad as mine, so I don't know what to make of this.

Margerie = current CEO of Total
The Dubreuil family owns the Cointreau cognac brand
Fourtou is the former CEO of Aventis (now Sanofi) and Vivendi
Jabes is the CEO of Nuxe, a cosmetics brand
To sum ip up, they are all well-off (okay, they're all filthy rich in fact), and it's pocket money to them.

Scuttlebutt investing

I happen to be a Vivendi customer.
I was a SFR customer but left them for Free mobile. For 1 h of mobile phone (amply enough for my needs), my bill went from 14.9 € to 2 €.
(side note : to be fair, Free mobile is cheap but it's far from perfect ; 2 times I was unable to make a call at peak hours because the network couldn't cope with it ; this never ever happened with SFR).

A nice lady from SFR called me recently, and asked if I was satisfied from my current contract with them...she wasn't aware that I had terminated it months ago; nothing serious but shows some lack of organisation somewhere.

SFR has lauched in 2011 a joint-venture with La Poste = French post-office. La Poste sells the subscriptions and SFR provides the network.
If you have a look at their current offer : that's ~9 €/month for 1 h, compared with 2 €/month with Free mobile. Who's going to buy that ?

I upgraded my ADSL subscription (from ADSL only to ADSL+unlimited fixed and mobile phone calls+ TV, I have a teenager at home...). I wanted to avoid switching fees and potential issues when changing the operator + I had 2 months offered as a "fidelity bonus" so I stayed with Vivendi.

My adress was not labelled correctly by whoever sent me the new modem, so I stayed 1 week without a phone connection, waiting for the new modem. Finally I had to pick it up at the nearby post-office.

Sure enough, my first bill didn't take into account the bonus even though I had scrupulously followed their online procedure. I called them, but they had no trace of it in their system. Luckily I had made a screenshot to prove my good faith.

The new ADSL connection works well.

Here again nothing serious, and my individual experience has no statistical value, but it left me a negative impression about the overall (or lack thereof) organisation.


See page 162 of the annual report

"For 2012, Vivendi expects adjusted net income to be above €2.5 billion, before the impact of the transactions announced in the second half of 2011 (see below). As a result, Vivendi expects to propose a dividend with respect to fiscal year 2012 representing around 45% to 55% of adjusted net income, payable in cash in 2013."

2011 adjusted net income is €2.95 bn, so we're looking at a 15 % decrase in earnings.
~ 50 % of 2.5 €bn earnings / nb of shares leads to a dividend of around 1 €. So I expect the dividend to remain stable.

"Vivendi expects Financial Net Debt to be below €14 billion at year end 2012, assuming closing by end of 2012 of the transactions announced in the second half of 2011 (see below)"

Now that one surprises me. Currently net debt is around €12 bn, so how do they manage to dig a deeper hole, despite (at least up to now) a positive FCF and a reduced dividend ?

SFR is the major contribution to cash flow. Here's what the annual report says :
"For 2012, SFR expects a 12% to 15% decrease in EBITDA  and cash flow from operations close to €1.7 billion (excluding the impact of 4G spectrum acquisition in January 2012 for €1,065 million)."

Cash flow from operations for SFR was €2.0 bn in 2011, so here again we're looking at a 15 % decrease, without taking into account the additional 1.0 bn CAPEX early 2012 ??
This may explain why Vivendi might need some additional debt in 2012 ?
Confusing and hardly encouraging.


Positives :
- Cheap
- Seth Klarman
- Brasil subsidiary GVT growth, but heavy CAPEX requirements

Negatives :
- lost confidence in management,
- negative 2012 outlook : rising debt, 15% decrease in earnings, maybe worse for FCF
- price war with competitors,
- high-risk macro and national environnement (who nows if France is not going to have to pay 6%+ interest rates on its national debt like Italy and Spain to fund the deficit in 2012 or next year)

So for me it's a stand-by. I'll update after HY 2012 earnings.
As usual, thanks for the feedback.

link to a German blog covering the same subject

13 commentaires:

  1. Hello, nice blog.

    I also have big interest in Vivendi. Feel free to visit my Blog. You can translate the site easily. you will find a translate button on the right side.

    Tell me what you think about the site. As im seeing more Value blogs in different countries maybe it will make sense if i do an value blog also in English language.

    Thank you for this Vivendi Analysis. I will also do some rough Vivendi Analysis on the page in the coming months.

    1. Hello
      Thanks for your interest.
      I had a look at your blog but I'll need to come back on it to give it more time.
      Google translate more or less works (you get a general idea about the meaning) but an additional effort is certainly needed to fully understand the original text.
      Wish I had not forgotten the German language I had learned at school !
      Saw a post about Siemens-Nixdorf that got me thinking...I'll probably make a post soon.

  2. Great post, I agree management has lost a lot credibility.

    Also why buy the part of SFR at full price from Vodafone if you already have control and there is a free competitor starting up in 9 months time?

    After saying the dividend is safe a number of times then cutting it was the last straw.

    Future capex and protecting the BBB credit rating will keep the dividend flat or it may even go lower.

    1. Thanks Tim and much honored
      I had stumbled on your website some time ago and I have shamelessly stolen your investing checklist !

      Also saw that you recommended LINEDATA.
      Funny because I also have it in my portfolio.


    2. Thanks for the kind words.

      Glad you liked the checklist.

      Linedata is a remarkable company with a much larger moat than is visible at first.

      The tender offer of course helped the share price a lot.

      Keep up the good work!

  3. The traffic on the blog went off the charts on this post.

    Kinda ironic, considering that my strongest convictions lie in obscure local small and mid-caps.

    Thanks to for his kind words, I appreciate it. Impressive value investing community in Germany apparently

    Thanks also to Nate from Oddball stocks in the US, I'm an avid reader of his blog!/oddballstocks

  4. Great blog - keep it up, and ideally mostly in English! :-)

  5. Dear caque,

    I am also a big fan of French small cap. Due to liquidity issues, I only have Tonnelerie in my portfolio, but I will have someposts soon about French small caps.

    I hope you will comment on them.


    1. Memyself

      I happen to own OENEO shares (ticker : SBT). OENEO is on the other side of the recent deal with TFF concerning the Radoux division sale. So yes I will look closely on your posts.

  6. Hi Caque,
    very interesting post! Keep up the good work! Nice in depth analysis (insider trading history is great, fcf...). Things could change a bit with the arrival of V.Bolloré as a new shareholder. He has a good ability to unlock value. The fact that he asked to be paid in shares rather than in cash for his holding in Direct 8 and direct star is a sign that the Vivendi stock can do better. We will see. The strong increase in LT debt is definetely not a great point and it is never enjoyable to see a decrease in the dividend. Their cash machine which was SFR is indeed under more pressure with Free. Maybe, their new cash machine will be their computer game division(Activision).

    1. Hi
      Yes I saw the info about Bolloré.
      In the US, Klarman was the focus. Bolloré = who's that ?
      In France, of course it's the exact opposite.
      Funny, isn't it ?

      Yes Bolloré was paid in Vivendi shares. But how much Viv did pay for Direct 8 ? Was it a fair deal for Viv ?

  7. Hi Caque,
    here is the info I could get my hands on (a good old internet search on the web site of bolloré!) it gives us the following elements: if Canal + (a subsidiary of Vivendi)takes the option which is available in the contract (buy 100% of Direct 8 and direct star and their advertising network in one go), Bolloré would receive 22,4 million shares. Hope it was useful!

  8. Hello
    Here is the info I have
    As I understand it, VIV would pay 279 m€ in shares (@17 € piece) + 186 m€ in cash for 100% of Direct 8+Direct star.
    That's 465 m€.
    According to this article
    2011 Sales of direct8 + direct star are 47+19=66 m€
    so VIV bought at 465/66 ~ 7 times 2011 sales
    Currently M6 television (ticker : MMT) is valued around 1 * 2011 Sales. And it's less for leader channel TF1 (ticker : TFI).
    So unless I'm mistaken VIV wildly overpaid once again).
    If I was Bolloré I would have accepted moderately overvalued VIV shares (17 € vs 13 € now) in exchange of a wildly overvalued Direct8, at the expense of current VIV shareholders.