Vivendi Update

Vivendi CEO says that its future lies in its content and media businesses and that it may announce the sale of its telecom units at its next annual shareholder meeting in April.

Also of note from this article is that the CEO estimates SFR to be worth 20 billion Euros by itself, or approximately $26.22 billion.  That estimate is 5 billion Euros more than the 15 billion Euros I estimated SFR to be worth in my latest sum of the parts valuation on Vivendi.

I think the CEO’s estimate of what SFR is worth is a bit optimistic, but if true that means that with Vivendi’s current market cap at $28.2 billion that the market is currently recognizing that Vivendi’s other assets are only worth a combined $2 billion.  We know this cannot be true because Vivendi’s 60% stake in $ATVI is currently worth $7.44 billion just by itself.  If SFR is really worth 20 billion Euros that means that the market is massively undervaluing Vivendi as a whole.

If I were to apply the CEO’s estimate of SFR’s value to my sum of the parts valuation that brings the value per share of Vivendi up to $42.45 per share, or $28.66 per share after subtracting debt and still not including UMG.

Vivendi’s new CEO may think that SFR is worth 20 billion Euros and as a shareholder I hope they are able to sell it for that price, but I am not counting on it, and I still think Vivendi is undervalued.

An Updated Sum Of The Parts Valuation of Vivendi, Buying More Shares, Also a Brief Update on $CMT

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.

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.

Investment Philosophy Review For New Visitors And Setting Up My Next Article

Let me first set up my next article for anyone who might be new to the site.  I only take into consideration with my valuations and analysis what I can see now, and pay almost no attention to rumored future possibilities or estimates of revenues and margins.

The only time future possibilities play any role in my articles are in situations where there is a clear catalyst: Activist/value investing firm or individual involved, the company is undergoing some kind of strategic review and is owned and controlled by a few people as in the case with Dole (DOLE) before I bought it, or the company’s management is trying to figure out ways to unlock the companies undervaluation by asset sales or spin off as in the situation with Vivendi (VIVHY.PK) before I bought into them.  Even in the above situations I still only valued the assets and operations as they are presently.

Generally, any other future potential I see in the company plays no part in my valuations or analysis, and is treated as the proverbial icing on top of the cake.

I like as much of a margin of safety as possible as I am a very conservative investor.  I see future possibilities and analyst and company estimates of the future generally as highly and unrealistically optimistic, which makes them wrong a lot and is why I have learned not to pay much attention to them.

Having stated all of that, I have begun my next article which is on Jack in the Box.  I hope to have the article up as soon as possible.

Vivendi News, Aswath Damodaran Valuing the Iphone Franchise, Warren Buffett, Great Investors, and Memory

Vivendi Studies Strategy After Two-Way Split Ruled Out is an article from Bloomberg Businessweek about what Vivendi might do now that it has allegedly ruled out breaking the company into two separate entities.  The interesting part of this article is that one of the scenarios states that Vivendi is looking at breaking up the entire company which would mean a sum of the parts valuation would be used.

My sum of the parts valuation done on 4-21-2012, written in my article here, came to a per share estimate of intrinsic value of $43.07 per share.  Looking back on the post now, I think that is a very conservative estimate.

Also on the Vivendi front, while I was reading Martin Whitman’s Third Avenue fund 3Q shareholder letter, I found that they have bought into Vivendi.  Here are their reasoning for buying into Vivendi at this time:

Also during the quarter, the Fund initiated a position in the shares of Vivendi S.A. (“Vivendi”), a company that has intrigued various members of our team for more than five years. The Fund had avoided investing in Vivendi’s shares for a variety of reasons, not the least of which were the company’s long-running addiction to debt-financed acquisitions and the absence of any discernible strategy for building shareholder value. In retrospect, the discipline paid off. The stock has performed very poorly over a long period of time. Vivendi spent much of its life as a French water utility, but in the mid-1990s was set on a path to become one of the world’s largest media and telecom empires. The improbable but very rapid transformation of Vivendi into a telecom and media giant was driven by a number of audacious debt fueled acquisitions. By the early 2000s, the tech, media and telecom bubble began to burst and the Vivendi empire famously came crashing down under a mountain of debt. The company spent much of the next decade languishing in the absence of strong management and a reasonable strategy. Most recently, though, considerable change is afoot at Vivendi. The company dismissed the CEO of its largest subsidiary, SFR, which is the second largest telecommunications company in France. SFR had been one of the epicenters of Vivendi mismanagement; the telecom company performed particularly poorly in the areas of cost management and in its failure to adequately address and confront the threat of new and increased competition. Shortly after the dismissal of SFR’s CEO, Vivendi’s board dismissed Vivendi’s own CEO, apparently as a result of irreconcilable strategic differences. Vivendi’s Chairman, who, during his own brief stint as CEO of Vivendi in the early 2000s, deleveraged the company considerably, has become the public face of the company and declared a strategic about-face. It appears that none of Vivendi’s underlying operating businesses are sacred any longer. As part of a broad restructuring effort, a number of its businesses have become subject to possible disposal in the effort to reduce Vivendi’s debt load and make headway in closing the gap between the share price and the underlying value of the company’s investee businesses, several of which are crown jewels within their respective industries. As it stands today, the company controls France’s second largest telecommunications company which, when combined with its control of the incumbent telecommunications company in Morocco and a highly successful Brazilian telecommunications company, would comprise a formidable global telecom business were they to be separated into an independent entity, as has been speculated. Vivendi also controls Canal +, France’s largest television business, as well as Universal Music and ActivisionBlizzard, the world’s largest music and video game businesses, respectively. There is considerable scope for dispositions as well as a sensible reconfiguration of the business into various components, all of which seem increasingly likely. Shares of Vivendi are trading at a considerable discount to our conservative estimate of its net asset value, essentially the current liquidation value of the company, and it appears that the mounting pressure on the company’s board has made value enhancing transactions and debt reduction increasingly probable.

 

Always nice to see a big time value fund buying into the companies you own.

Aswath Damodaran’s: Apple’s Crown Jewel: Valuing the Iphone Franchise is amazing valuation piece which could be used as a template to value other powerful franchises.

Warren Buffett Reflects on why he stayed in Omaha.

How to Gain an Investment Edge with Quotient’s Andre Bertolotti is a 4 minute video clip from The Manual of Ideas on how Bertolotti gains an edge in his investments.

How I got Religion and Dropped My Series 7 is a very interesting 6 minute video interview with the Reformed Broker about what he sees as the failings of holding the series 7 and the problems it can create in investment firms and Wall Street.

The Science and Psychology of Memory is a short write up from Farnam Street on things that you can do to improve your memory.

More links to come until I figure out if either of the two companies I have found to research deserve full article treatment.

Vivendi sale of ATVI update

Headline on Seeking Alpha this morning: Vivendi (VIVHY.PK) is reportedly shelving plans to find a buyer for its $8B, 61% stake in Activision (ATVI -5.7%), after its initial efforts failed to draw interest. Many have doubted a buyer would emerge, given the size of the stake and concerns about the gaming industry’s health. The news comes as Activision sells off on account of its Q2 report, as strong sales of Skylanders merchandise are outweighed by tepid guidance and a major drop in World of Warcraft subs.

Here is another article from Forbes on the situation as well.

http://www.forbes.com/sites/ericsavitz/2012/08/03/vivendi-reportedly-back-off-plans-to-sell-activision-stake/

Interested to see what they decide to do now.

New valuation techniques

Finally I can get to the new valuation techniques I have been working on lately, some are from the Manual of Ideas free download that I wrote about here, and see how they apply when used on Vivendi.

I will only put the base case on here and explain how you can change the values higher and lower if you would like to incorporate some of these into your use.

First up is a revenue and EBIT based valuation:

  • TTM revenue=28.8 billion
  • Multiplied by:
  • Average 7 year EBIT %: 18.24%
  • Equals:
  • Estimated EBIT: 5.11 billion
  • Multiplied by:
  • Assumed fair value multiple of EBIT: 8X
  • Equals:
  • Estimated fair enterprise value of VIVHY:40.86 billion
  • Plus:
  • Cash, cash equivalents, and short term investments:4.85 billion
  • Minus:
  • Total debt: 15.71 billion
  • Equals:
  • Estimated fair value of common equity of VIVHY: 29.99 billion Euros.
  • Equals:
  • $36.60 billion.
  • Divided by
  • Number of shares: 1.242 billion
  • Equals:
  • $29.47 per share.

If you want higher and lower estimate of values than you just change the EBIT multiple.

Second technique is a book value and P/B technique.

  • Book Value: 23.75 billion
  • Minus:
  • Intangibles: 6.814 billion
  • Equals:
  • Tangible book value: 16.94 billion
  • Multiplied by:
  • Industry P/B: 2X
  • Equals:
  • Industry multiple implied fair value: 33.88 billion (27.28 Euros per share)
  • Multiplied by:
  • Assumed multiple as a percentage of industry multiple: 95% (1.9X multiple of tangible book.
  • Equals:
  • Estimated fair value of the common equity of VIVHY: 32.19 billion Euros.
  • Equals:
  • $39.4 billion
  • Divided by:
  • Number of shares of 1.242 billion
  • Equals:
  • $31.72 per share.

To adjust this valuation change the industry multiple percentage.

As you can see, using these techniques I am still finding VIVHY to be very undervalued to its current price of $18.33 per share.

I was originally planning on putting more on here, but I will save those for my next company analysis and valuation.  I used five different valuation techniques to value the company I am researching right now, including one that is not in the MoI publication.

I will hopefully have the analysis up at the latest by Monday since I am going to be at one of my best friends weddings this weekend.

This is just a sample of some of the techniques in the Manual of Ideas free publication.  There are several more, including some industry specific ones, like how to value gas and oil reserves.  I highly recommend downloading the free publication from MoI to hone some of your techniques and maybe learn some new ones.

Hope you enjoy

Dole and Vivendi news, Disgusting politicians (again), and “Evidence” of a coming recession

Before I get to some valuations I wanted to post these updates and news stories since it was a busy news day yesterday.

Dole

I thought this article was pretty benign yesterday when I first read it.  It is Dole’s second quarter and strategic review update.  The second quarter about matched the “analysts” expectations and they didn’t really announce anything of major value about the strategic review, quoting:

Strategic Business Review

Deutsche Bank Securities Inc. and Wells Fargo Securities LLC are assisting the Board of Directors and management in reviewing a number of strategic alternatives. The company is currently evaluating prospective transactions and options for a number of the companys businesses and has been in discussions with numerous third parties who have expressed interest in select businesses. For the worldwide packaged foods business, the company is exploring a possible sale transaction as well as a possible spin-off of this business to current Dole stockholders. The company is also exploring a possible separation of the worldwide packaged foods business in combination with Dole operations in Asia, into a stand-alone, primarily Asia-based company either through a possible joint venture with third parties interested in partnering with Dole or through an initial public offering in Asia. All of these alternatives are intended to enhance shareholder value. The company believes it is on track to achieve one or more of these possible transactions, or any other transaction in connection with the strategic review, by the end of the year. However, there can be no assurances that the company will pursue or complete any of the strategic alternatives that are currently being reviewed or any other transaction. The company intends to disclose developments with respect to the progress, if any, of the strategic review process at such time as the company determines that further disclosure is appropriate or where possible definitive agreement terms require disclosure.

 

They have been saying pretty much the same stuff for a few months now so I was surprised to see this morning that Dole is up more than $1 per share or about 11%.  Glad I bought more shares for some accounts I manage.  Unfortunately, I still have not been able to buy shares for my personal account, waiting for money to be available to put into the account, ugh.

Vivendi

Something surprising from Vivendi came out yesterday also.  This article talks about how Vivendi is allegedly looking to sell GVT, its Brazilian telecom subsidiary.  I was surprised to see this because I remember reading somewhere that they would not sell GVT, that they were planning on building around them.

In my opinion, GVT is the best long term subsidiary for Vivendi, it has the greatest upside potential, it is in a growing country that wants better telecom.  But it also is going to have a lot of expenses due to upgrading their telecom network, which might be one reason why they are looking to sell.

Vivendi must either be getting some pretty good offers for GVT, or they are having a lot of problems selling ATVI.

Disgusting politicians, again

This article is about how Eric Cantor, or someone from his office, changed language in the STOCK Act that was passed in congress earlier this year to stop insider trading on Capitol Hill.

The language that was changed would now make members of the politicians families exempt from the law.  After having this brought to their attention there is now “outrage” and they are now “working to change the law back to what it was originally intended to be.”

Disgusting politicians.

Signs of the coming recession?

First up is an article that talks about how South Korea is going through another banking crisis.

Second is an article that gives “Overwhelming Evidence of a Coming Recession” here in the US.

I will leave it up to you to decide whether you think a recession is coming or not.

Next up will be some of my new valuation techniques I have been learning

More Activision Blizzard and Vivendi news, and a Warning from the CFA Institute

More Vivendi and Activision Blizzard news

I thought this article was interesting, mainly because I have never thought of this possibility.  The article talks about how Activision Blizzard could buy its own shares back from Vivendi, instead of Vivendi spinning off or selling ATVI to a third-party.  It speculates that because Vivendi is having trouble selling Activision, and since ATVI has about $3 billion in cash and almost no debt that they could finance the rest of the transaction.

To me this makes zero sense from both companies perspectives.

  • For Vivendi they would most likely not get the premium on the shares that they are looking for, meaning they would not be able to pay down their debt to the levels they would want.
  • For Activision this would mean they would lower their cash hoard, and have to leverage up their balance sheet just to make the transaction happen.  Seems like a loser to me on all accounts.

I am interested to see if anyone has any differing thoughts on this possibility.

Here is an overview of the gaming industry and the profitability of each company.

Three things surprised me about this graphic: 1) That Gamestop is making as much money as they are.  2) That ATVI was behind Nintendo, Namco Bandai, Sega, and only slightly ahead of EA in terms of profits. 3) That Zynga is making over $1 billion in profits.  Most of their games are free to play on Facebook aren’t they?  I do not know much about Zynga, I have never played any of its games, and only heard of a couple of them, so if anyone else has information on them could you please let me know.

A Warning from the CFA Institute

This article talks about decision making errors that could be hurting your investment performance and talks about five active thinking strategies.  Some pretty interesting thoughts.

My next post will be a mini review of Valuation: Measuring and Managing the Value of Companies

Cove Street Capital and an article on Activision Blizzard that has an opposing view to mine

Cove Street Capital

I found this site on csinvesting’s site, yet again.  So far I have read through a few of the links that CS has posted from Cove Street Capital’s site and thought I would share this site with you.  I cannot vouch for the accuracy or quality of research done, since I have not researched the companies that he talks about, at least what little I have looked into so far.

However, I decided to put it up here because the way Cove Street thinks about the companies, the industry they are in, and how they outline their investment thesis is impressive, and could be something to learn from, an example is here.  I will continue to look through the site to see if I see anything else that stands out.

Activision Blizzard article

Here is a pretty good article about Activision Blizzard and their future prospects.    I do not really like how he mainly talks in generalities, but he does go over ATVI’s gaming properties very well and lays out a decent bull case for the company.  He also does not value the company.

I wanted to put this on the blog mainly because it is an opposite opinion that what I laid out in my article on Vivendi here.  It is always a good thing to seek out differing opinions than the ones you have.  Not only might you learn something, you might also see something in the analysis that you might have missed.

Hope you enjoy

Moats, Vivendi having trouble selling ATVI, and tips from Leon Cooperman

Moats

Finding companies that are undervalued and have a moat, or competitive advantage, is a winning combination for value investors.  Determining if a company has a moat can be difficult, and finding a company that has a long term competitive advantage can be even harder.  Here is an article from morningstar.com that talks about moats, and gives you some examples so that we can learn how to spot them.

Vivendi having problems finding buyers for Activison Blizzard

I have thought for a while now that Vivendi would have difficulty finding a buyer for Activision Blizzard, this article only confirms my suspicions.  So far it looks like Microsoft and Disney have said no to buying ATVI.  If they cannot find a buyer, then they will either sell the shares on the open market or do some kind of spin off of ATVI.

Leon Cooperman

Leon Cooperman, who founded Omega Advisors investment fund in 1991, and who is now worth $2 billion, gives his tips on how to succeed in business, and how to become a better investment advisor.

I hope you enjoy.