On Wednesday, Bernstein SocGen Group began its coverage of Canal+ SA (CAN:LN), issuing an Outperform rating and setting a price target of £3.55. The firm highlighted Canal+'s successful strategy adjustments over the last five years, which have included a shift from an exclusivity model to one of aggregation, incorporating third-party over-the-top (OTT) applications into its offerings. Furthermore, the company has reduced its content dependency on any single genre or supplier and has expanded its international presence through acquisitions that are accretive to margins, such as M7 and SPI.
The analysis by Bernstein SocGen pointed out that Canal+'s profit mix is currently polarized. The French pay TV core franchise, responsible for nearly half of the company's revenues, is still operating at a loss. However, assets considered to be 'below the radar', including M7, Overseas, Poland, and Africa, are generating higher margins. Additionally, smaller, high-growth assets are on the path to reaching breakeven, such as GVA and Dailymotion.
Canal+'s path to gaining investor traction, according to the firm, involves several key steps. First, the company needs to provide more clarity on the French pay TV's path to profitability. This includes CEO M. Saada's vision for cost optimization and the expectation that revenues will outpace costs by 50 basis points over the next five years.
Second, Canal+ should identify levers to normalize cash conversion, which is anticipated to remain poor in 2025. Lastly, the company needs to gain visibility on the synergies and impacts of the transformative acquisition of MultiChoice (JO:MCGJ), which is seen as an excellent fit with Canal+'s African operations.
The firm's coverage initiation comes with a positive outlook for Canal+'s future, given the strategic moves the company has made and the potential for improved profitability and investor confidence.
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