This is part two of a four-part interview with Philippe Desurmont Chief Investment Officer and Portfolio Manager of SMA Gestion. The interview is part of ValueWalk’s Value Fund Interview Series.
SMA Gestion is the asset manager of insurance company Groupe SMA. The firm manages in excess of €20 billion and its leading fund has outperformed the Eurostoxx 50 index by an average of 5% per annum net of fees since its inception 2005. This impressive performance places the fund in the top five best-performing European equity funds since 2010.
The interview has been divided into several parts and will be downloadable as a PDF at the end of the series. So stay tuned for the rest of the series as well as the downloadable PDF!
Interview With The Philippe Desurmont Of SMA Gestion [Part 2]
Could you give us an example of one company that has recently piqued your interest and why?
We have been invested, for some time, in the French group, Vivendi. The company is run by the industrialist, Vincent Bolloré, who is also its largest shareholder (14.4% of capital). Although to date, the company does not meet all of the investment criteria we seek our view is that Vivendi could eventually become a major player – and highly profitable – in the media sector and the market highly misunderstands this potential.
The company has two primary assets, Universal Music and Canal+. After fifteen years of transformation in the music industry, Universal Music should return to the path of growth and see its operating margin grow as well. As for Canal+, it has implemented a new business model that is promising. The case of Sky in the UK market shows that pay-TV operators can remain profitable provided they have the right strategy and are well managed.
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In addition, Vivendi owns 24.68% of Telecom Italia and is currently negotiating (albeit in difficult conditions) a stake in Mediaset (No.1 in commercial television in Italy) and the acquisition of its subsidiary Mediaset Premium (No. 2 behind pay TV Sky Italia). These assets offer Vivendi multiple options to improve its competitive position and accelerate its growth. Their opportunities include 1/ a recovery in the Mediaset Premium, and Telecom Italia 2/ control of the television market in Southern Europe given that Mediaset is the largest shareholder (50.12%) of Mediaset Espana (No. 1 of commercial television in Spain), 3/ leading (or participating) the consolidation of the European telecom sector from Telecom Italia and 4/ maybe eventually consolidating the media assets with the Sky group to form the no. 1 European pay-TV group (and based on a first stage being a merger of Mediaset Premium and Sky Italia).
Vivendi’s management team remains cautious and discreet about their intentions, but these transactions offer potential to create tremendous value. However, the market currently does not value any of these options nor does not value the recovery of Canal+ and underestimates prospects of Universal Music. Vivendi has an asymmetric investment profile in our view, with limited downside risk and significant upside potential – precisely as we like our investments.
SMA has more than €20 billion in AUM, do you think that having such a large asset base holds you back from finding the best opportunities?
The assets under management are not a limiting factor for us. We manage about 3 billion Euros in equities, which allows us to invest in companies with market capitalization in excess of EUR500 million.