An Updated Sum Of The Parts Valuation of Vivendi
While I am waiting for Dole’s next quarterly report to come out so I can finish my updated valuations and analysis of it, I have been researching some new companies and reanalyzing Vivendi and Core Molding Technologies since new information has come out about both.
After revaluing CMT with updated quarterly numbers it is still selling at a very good discount to my estimate of intrinsic value and I may buy more shares at any time after hearing specifics from CMT management about how Navistar’s problems are affecting it.
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When I did my first sum of the parts valuation of Vivendi in July I had no information or very limited information about the values of its subsidiaries: GVT, Canal+, SFR, and Universal Music Group. Since that time some information has come out about three of those, which has helped clarify the sum of the parts valuation quite a bit.
Vivendi is still seeking to spin off or sell some of the below companies to unlock value in its shares.
- An estimated sale price for SFR if Vivendi were to find a buyer is at 15 billion Euros
- Canal+ 20% estimated price that Vivendi does not own has a conservative estimated IPO price of $900 million. Vivendi owns 80% of Canal+ meaning conservatively its estimated stake in Canal+ has a price of $3.6 billion.
- Vivendi is seeking 5.5 billion Euros for its 53% stake in Maroc Telecom. Vivendi’s current 53% stake market price in Maroc Telecom is worth 4.72 billion Euros or $6.02 billion.
- Vivendi owns 60% of Activision Blizzard which is currently worth $7.44 billion at market.
- Vivendi is seeking at minimum 7 billion Euros for GVT.
- I still cannot find any reasonable estimate of value for Universal Music Group so at this point I will still leave this out of my estimates.
Adding all of the above together and converting everything to US Dollars gets us to a total estimated price of $46.13 billion. Vivendi’s numbers of shares are still 1.242 billion.
- $46.13/1.242=$37.14 per share.
For the sake of being conservative and assuming that Vivendi will not be able to get the prices it wants from some sales or spin offs of some of the subsidiaries, which is already the case in a couple instances, I will knock off $7.14 from the per share estimate which gets us to an extremely conservative, probably too conservative, value of Vivendi at $30 per share, which still does not even include UMG or Vivendi’s cash and debt.
Here is my original Vivendi article from June for a comparison of the values then and now.
The $30 per share price is an absolute worst case estimate of value. Today I bought more shares at $19.22 per share for all portfolios that I manage, meaning there is still a 36% margin of safety to my absolute lowest case value of Vivendi, and an almost 50% discount to my more reasonable estimate of value. Neither of the two estimates even take into account Universal Music Group, Vivendi’s cash, or debt.
Vivendi now makes up about 25% of my personal portfolio.
Hey. I don’t see how you can leave out Vivendi debt in this analysis as net debt substantial and represents a claim ahead of equity. Most sum of the parts I have seen on Vivendi do show it to be undervalued, but more precision is clearly necesary to make a quality stab at valuation.
Thanks for you comments.
The reason I left the cash and debt out of this valuation was because the main reason Vivendi wants to sell or spin off some of these assets is to lower its debt load. I cannot speculate into the future how much debt and cash will stay with Vivendi or even if it will be able to sell or spin off any of these assets so I wanted to stay out of the realm of speculation and only on conservative estimates of value of its subsidiaries.
Hmm, Jason, not sure if this answer makes sense to me.
Vivendi’s worth is its enterprise value, i.e. the value of the various business + the value of its debt obligations – cash.
You are saying, in your various articles & posts on this company, that
1. the current market price of Vivendi’s stock inadequately reflects Vivendi’s enterprise value; and
2. that this value will be better revealed when Vivendi sells off some businesses.
Intrinsic value is always best understood in terms of enterprise value. Equity is just the residual after net debt, minority interests and the like.
Analogy: you own a newly developed 10-unit condo complex with a $10 million mortgage. You think that the market inadequately appreciates the value of the condo complex. You think it’s worth $30 million, but you can’t seem to find an investor who’ll buy it from you for above $15 million. So you sell 4 units to consumers at $3 million each. EV is now shown to be $3 million x 10 = $30 million, just like you said.
The last paragraph is especially puzzling to me: what is value if not the price that others (private buyers, esp) would pay?
@ Red
Thanks for your questions.
I agree with you that technically I am probably not doing things correctly as it pertains to Vivendi’s EV in this case, normally I would have included debt as well. However, let me state my case for doing it the way I did in my most recent write up on them.
Vivendi has stated multiple times that it is going to sell or spin off one or multiple of its subsidiaries so that it can: 1. Unlock the value of its shares, as management thinks that its shares are undervalued by as much as 40% currently. 2. And to lower its debt load to a more sustainable level. Another reason it has said it wants to lower its debt levels is because debt rating agencies have told Vivendi management that if it does not lower its debt load that the rating agencies will lower its debt rating, if I remember right to just above junk level.
Vivendi has made it seem that it will sell or spin one or multiple of its subsidiaries at almost any reasonable price to pay off debt and to prevent the lowering of its debt rating, even dismissing its former CEO who wanted to keep the company whole and not sell or spin off any of its subsidiaries.
Vivendi has received multiple bids on GVT already and hopes to complete a transaction in Q1 of fiscal 2013. The company has been fielding offers on Maroc telecom as well but to this point seems less concrete than the GVT offers.
To me there are multiple reasons and catalysts why Vivendi will consummate some kind of deal to lower its debt level, which is why I chose not to include debt in my calculations and is why I just concentrated on what the individual businesses may be able to be sold for, and what Vivendi could be worth if and when it pays down debt.
For the sake of argument, Vivendi currently has $18.12 per share in short and long term debt. Subtracting that from my original conservative estimate of price without UMG, $37.14 per share gets us to $19.02 per share for the equity. Adding back cash and short term investments to it’s per share value gets us to $23.35 per share, or about correctly valued currently, again still not including UMG. Even accounting for debt, the company is still 30% undervalued at my original buy price around $16.50 per share, and about 25% undervalued to my current total cost basis around $17.50 per share.
I still think that Vivendi will be worth somewhere between $30-$37.14 after it pays down some of its debt after it sells or spins of subsidiary(s), again not including UMG so it could be worth a bit more.
Please let me know if this makes any more sense or if I may have done anything wrong in my calculations.
Thanks again Red.
Thanks for the reply
So, reorganizing a little:
1. You think that the intrinsic value of Vivendi is ~$37 per share
2. It owes $18 in straight debt, $2 in capitalized operating leases, $0.32 in unfunded pension obligations. Against that, it has $4.32 in cash & near equivalents.
2. So equity is worth 37 – 18 – 2 – 0.32 + 4.32 = $21.
That’s a 31% upside, if (a) you’re right about the earning power of Vivendi’s businesses, which I think you are, and (b) if management’s hurry to sell various businesses isn’t so great that buyers take advantage and offer less than fair value.
Got it.
I guess what has puzzled me a little abut the various write-ups that I have seen on Vivendi s that the best case upside seems so small. 30% upsides to intrinsic value are a dime a dozen in the current market and so many of them are less complicated and less risky than Vivendi seems to be.
The market — and this is a big company that attracts the attentions of big investors — seems to think that Vivendi will sell its various units but will do so at below fair value prices. If it sells them at a 10% discount, EV is $33 and the equity is worth $17. That certainly seems plausible to me. Why doesn’t it seem plausible to you?
@Red
The scenario at $17 seems entirely plausible to me if A) You think that Vivendi is only worth its reproduction value without goodwill and IA, and/or B) You think that its operations are not valuable, and/or C) You do not think that Vivendi will be able to sell or spin off any of its subsidiaries and continue to be encumbered by its debt load, thus having its debt rating lowered.
It looks like we may just have differing opinions on Vivendi’s assets and operations.
As always let me know where I may be wrong.
To your other question about upside. I will take 30% over one or two years in this artificially inflated economy. I have been reading your blog for ideas to steal as well : )
I have always only thought of Vivendi as a one or two year spin off or asset sale opportunity. I agree that as a long term hold potentially for years, decades , or forever, it is probably not that great of a bet. In the short term I like my odds of making that 30% over a year or two as I am already up 15% in my personal account, and 20% in accounts I manage with Vivendi on almost no news.
I see. Thanks for the explanation.
Let me suggest a stock that I think you would enjoy looking at (in line with some of the other one’s that you’ve concentrated on) and that you might also find undervalued: Brazil Fast Food, trading in the pink sheets under the ticker BOBS.
Thanks for the discussion and for your blog, too.
@Red
Thank you very much for the discussion. I want this site to become a place of discussion and critique. I learn faster that way and I think most people learn better that way as well. I want to learn as much as possible as fast as possible so I make my mistakes now when I am managing a relatively small amount of money, instead of making the mistakes after I go to work for someone or open up my own investment firm. Thanks again for helping that process.
I hope my explanations made sense to you.
Thanks for the company heads up as well and I will definintly look into them. I saw that they recently deregistered with the SEC which may be an opportunity. Will look into them after I get my next article written up.