Some 100 million of these machines have elapsed in the world He grows a lateralism form over functionThe election does not guarantee democracyPassersby bulge eye or burst out laughingSwaps specialists role growing in several marketsClearly the refusal must be firmly substantiatedBut it is also known to speak when neededMore a market is liquid most operations are fast and intense exchangesauthorities will act before the ECB but in a long timeRight Courbevoie unanimously denounced the operationIt is little said that the British EMI, third world major of the disk, has occupied the front of the market scene in recent months. The outbreak of the action caused by the prospect of a merger with us rival Warner Music was halted by the intervention of European justice.
Canceling, in July, the green light given by the Commission in Brussels in 2004 to the rapprochement between Sony Music and BMG, the Luxembourg Court nullified hope quickly materialize this marriage and douché speculation on the stock exchange of EMI course. Worn by the speculation, it had reached the 314 pence in Julyits highest level since June 2002, to settle in the area of 250 pence in the last days, a fall of 20. The recession was also violent that had been the flood...
It was the third time in six years that EMI and Warner Music trying to marry! The proposed merger was however found to be credible by analysts, taking into account the evolution of the market. They had even begun to calculate the amount of the expected synergies between the two majors (not less than 1.3 billion pounds, according to Merrill Lynch). But, of admission of the two groups, the approximation will not occur. Until the European Commission will not rule on Sony BMG and as long as this decision will not be validated by the justice, EMI and Warner Music leave aside any proposed merger, which, in practical terms, will last for several years.
Before even these regulatory issues, they is to even not were agreement on the modalities of the operation, or, most importantly, the leadership of the new set, subject o how sensitive. Forgotten therefore speculation on the EMI action at this time.
Back to the fundamental
This new situation requires specialists to again run their models and redefine stricto sensu the fundamental value of society chaired by Eric Nicoli. This value must to apprehend on the one hand from the perspectives of market of disk which EMI takes 80 of its revenues, the rest from publishing music and on the other hand, on the ability of the group to maintain a level of profitability in line with the expectations of the market. "The most important question for investors is whether music can become a growth industry," thus note Citigroup analysts.
At the moment, no clear message was sent to the market and the environment remains highly uncertain. Signs of a restart of sales on the physical media, which majors still perform most of their turnover, are not frankly in major global markets: Europe, where EMI carries out nearly half of its activity, the recovery is not yet meet. The market thus declined by 9 in France in the first half. In the United States, it is best, but rebooting seems still too fragile. And digital, on which many hopes were based still a few months ago, is showing signs of slowing down.
Finally, there are issues specific to EMI: share of market in the United States is inadequate. And, to the Japan, the group experienced difficulties that obliged him to restructure. In its 2005-2006 fiscal year, it saw its melt almost 2 points to 7.7. In the world, society has managed to slightly improve its market share of 12.9 to 13.1 for the same year, thanks mainly to activity supported in Europe.
Cost reduction
These good commercial performance allow EMI continue to well to make financially. For the 2005-2006 fiscal year, ended in March, the British Group thus posted an increase of 3.9 of its turnover (3.7 for disk) and 4.7 for the music publishing and has improved its operating margin to 12. Improvement of the margin was more significant in division drive from 7.8 to 8.7 in one year evidence that the restructuring plans of this activity, carried out under the leadership of his boss, Alain Lévy, was performed in time and, especially, have borne fruit. They allow the company to stay the course in an environment which remains difficult.
Not therefore this side, analysts not worried: they provide even a slight increase in activity over the next years, constant environment, with, in parallel, an improvement in operating margin which could reach 14 by 2008. It will continue to come primarily from the reduction of the costs, but also the power mounted possible digital (read below).
Historic haircut
The same analysts are not less careful in their valuations and their course objectives. They believe indeed that the record industry presents "high risk". Not on piracy, prosecution have slowed the attendance of the "peer to peer" sites, pet peeves of the producers.
But new forms of counterfeits appear, which does not say that the phenomenon has been brought under control. On the modes of consumption paying in the paperless world, none is emerging really so far (see opposite), which does not contribute to give more visibility on the sector in the stock market, and in particular on the only two values purely "music", EMI in Europe and Warner Music in the United States.
In this context, experts mostly emit a neutral recommendation on EMI, increase scenarios (best margins with digital, physical market...) compensating those decline (worsening of piracy, macroeconomic risks...). The consensus identified by the Agency Bloomberg in the past 12 months is therefore very careful: it thus highlights six recommendations to purchase, nine neutral and three to the sale.
Opinion is divided, evidence of the current uncertainty! "EMI is currently processing with a haircut of 5 from its equilibrium, against a generally registered 10-20 discount value over the past eighteen months", the view UBS, which thus points the risk of a return to action towards its "historic" discount level, which would lead it in the area of the 210-230 pence. Meanwhile, Citigroup had estimated at 245 pence course of IME action on failure of the proposed merger with Warner Music. It is not far away.
A 249,75 pence Friday, action EMI to values between 13 and 14 times the benefits for 2007, a level in line with the industry media, but in the bottom of the range. "Even if the company is only, we do see no important action EMI reduction potential." "The major risk on earnings per share is related to an eventual decline of the dollar", thus believed Citigroup, before the official surrender of the discussions between the two parties. With little catalyst to increase and a risk of decline limited and anyway dependent mainly macroeconomic risks, EMI has more to do the round back.
