Vivendi signals reversal on optimistic FY17 earnings view

A week earlier, the French mass media giant Vivendi SA (OTC: VIVHY) reported a marginal decline in the fiscal 2016 fourth-quarter revenue, compared with the same quarter last year. The Q4 earnings from continuing operations also plunged 59% on a y-o-y basis.

Furthermore, the FY16 and fourth-quarter adjusted EBITA, a crucial measure used by analysts to assess performance, fell 71.4% and 23.2% respectively. Following the results, as expected, the stock plunged to a low of $17.12. Since then, it has been consolidating at 17.50 levels. We anticipate a short-term rally in the stock on the basis of the facts provided underneath.

The Paris-based company reported Q4-2016 revenues of €3.107 billion, down 1.2% from €3.147 billion in Q4-2015. For the fourth-quarter, earnings from continuing operations were €59 million or €0.05 per share, while the adjusted net income was €130 million or €0.10 per share. This compares with prior-year’s fourth-quarter earnings from continuing operations of €145 million or €0.10 per share, and adjusted net income of €196 million or €0.14 per share.

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For fiscal 2016, Vivendi recorded revenues of €10.82 billion, compared with €10.76 billion in the fiscal 2015. The FY16 earnings from continuing operations were €1.236 billion or €0.99 per share, up 77% from €699 million or €1.41 per share in the similar period of FY15. The adjusted net income for fiscal 2016 increased 8.4% to €755 million or €0.54 per share, from €697 million or €0.51 per share in the previous fiscal year. The figures also surpassed FactSet analysts’ earnings estimate of €733 million for the fiscal 2016.

Adjusted EBITA fell to €60 million and €724 million in the fourth-quarter and fiscal 2016 respectively. Canal plus – Vivendi’s pay TV business – reported 44% y-o-y decline in profit. TV subscriptions account for nearly half of the company’s revenue. So, the company was hurt financially when it lost nearly 500,000 subscribers last year. However, on the basis of the efforts taken so far, Vivendi is confident of regaining the lost market share in 2017.

The Universal Music Group segment posted a 9.8% increase in income from operations to €687 million. Gameloft segment reported operating income of €10 million in 2016. The segment became fully consolidated only in the second half of 2016. For fiscal 2016, the board has recommended a dividend of €0.40 per share. Vivendi also announced that it would buy back shares whenever it finds the situation conducive.

Commenting on the results, the Chairman Vincent Bollore stated that he anticipates a 5% revenue growth and 25% increase in core earnings this year.

On the basis of the upbeat outlook, the investment research firm S&P Capital IQ has upgraded Vivendi’s rating to “buy”, from the prior “hold” rating. The firm has also issued a target price of €19.50 ($20.65) for the stock of Vivendi.

The stock of Vivendi has found a technical support at 17.30, as shown in the chart. The stochastic oscillator is about to cross over to the bullish zone, which is represented by readings above 50. The path of least resistance is on the upside. So, a trader can anticipate the stock to reach its next resistance level of 18.10.

To gain from the analysis, a binary trader can consider purchasing a high or above contract using the trading platform of any suitable broker. A contract validity period of one week would be advantageous to the trader. Likewise, it would benefit if the contract is bought when the stock trades near 17.50 in the equity market.

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