Buy: Canal+
Spin-offs have long been a fertile hunting ground, as indiscriminate post-listing selling often creates attractive entry points. Think Montauk Renewables, Thungela Resources and WeBuyCars. Spun out of Vivendi 18 months ago and recently listed on the JSE, Canal+ may offer a similar opportunity.
With a market capitalisation of under €3bn, the core Canal+ business is expected to generate over €300m in cash this year, rising to more than €500m in the medium term as synergies from the MultiChoice merger are extracted. The key debate remains whether MultiChoice is structurally impaired or simply a mismanaged asset now under more disciplined ownership.
Early signs have been encouraging: tighter cost control, a refreshed sales push, improved customer initiatives and more disciplined capital allocation. A Fifa World Cup year and stabilising African currencies add a welcome tailwind. In a consolidating pay-TV sector, Canal+ also retains strategic appeal. At an undemanding valuation, it looks like a side that has spent years scoring own goals but now finally has a manager who can turn possession into points.
Sell: Schroder European Real Estate Investment Trust
Schroder has had a poor run on the stock market. Having listed a decade ago at roughly twice the current share price, it recently announced plans to liquidate over the next two to three years. While the shares trade at around two-thirds of reported NAV, suggesting apparent upside on paper, several risks lie beneath the surface.
First, the group faces a €15m tax dispute in France, equivalent to roughly 10% of reported NAV. Although the assessment is being appealed, no provision has been recognised, leaving investors exposed should the appeal fail. Second, the group’s largest asset, a mixed-use office and data centre property in the Netherlands that previously accounted for around 20% of rental income, is now vacant. Leasing efforts have been unsuccessful, with alternative uses now being explored.
Lastly, operating expenses exceed 2.5% per year, with an additional incentive scheme under consideration during the liquidation process. Investors lured by the discount to NAV may find that much of it disappears before the final curtain falls.
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