WMG stock forecast: How is Warners responding to the Universal IPO?
What is the WMG share forecast now Universal Music Group will carry out an IPO?
Warner Brothers is one of the most recognised names in the entertainment business. When it comes to the music industry, its offshoot, Warner Music Group (WMG) is also a major player.
In the summer of 2020, WMG became a publicly traded entity, sparking an immediate interest among rivals and other associated groups within the music industry in joining the financial markets. The most notable of its competitors to broach the subject since then is Universal Music Group (UMG), which recently announced plans to list on the Euronext Amsterdam stock market with an initial public offering (IPO) scheduled for 21 September.
Before looking at developments at Warner, examine what has been happening with the Universal IPO.
Over the past two years, the French media giant Vivendi has been gradually selling its stake in UMG, the conglomerate's most profitable subsidiary.
By spring 2020, Vivendi had sold 10% of UMG to the Chinese media firm Tencent Holdings for €3bn ($4.16bn), based on an enterprise value of €30bn for 100% of UMG’s share capital.
Late last year, a consortium lead by Tencent bought a further 10% for the same price.
At the end of August this year, the UK investment firm Pershing Square Holdings bought a 10% stake, based on an enterprise value of €35bn.
In June, Vivendi confirmed plans to float 60% of its subsidiary on the Euronext Amsterdam Stock Exchange, after a 99.9% vote in support of the move by its shareholders.
The vote also saw shareholders agree to a Vivendi public share buyback offer for as much as 50% of the share capital.
One of the most important aspects of the IPO is that it will see Universal listed on European stock markets, like Warners.
The new entity will have a board “comprised primarily of non-executive members, a majority of whom will be independent”, the company said, adding neither “Vivendi nor Group Bolloré intend to be represented on the board at this stage”.
After the spin-off, Vivendi will retain a 20% stake in Universal Music Group, leaving Tencent Consortium owning 20%, Group Bolloré owning 16%, Pershing Square Holdings owning 10% and the remaining 44% by other Vivendi shareholders.
Group Bolloré, owner of 27% of Vivendi stock, will control, both directly and indirectly, 36% of the music company.
Warner Music Group enjoyed a successful public listing in June 2020, increasing appetite for stocks in this sector.
The company raised $1.7bn issuing shares at $23 to$26 per share. Stocks jumped by 20% during its first trading day and remained strong throughout 2020.
More recently, however, the stocks have lagged, slipping significantly behind the S&P 500 Media and Entertainment group. Despite this, the company’s enterprise value has doubled in the space of a year, from $12.8bn in June last year to $22.82bn this month.
What impact has the news of the Universal IPO had on Warner’s share price?
WMG's price and the Universal IPO
Warner’s initial public offering’s share price was $25. While the price did not drop much below that, there was solid but not spectacular growth.
Tencent made its move to buy 10% of Universal in December 2020. At the start of December, a share in WMG was worth $29.76 and when the month and the year ended, it was worth $37.99. Would the news about Tencent and Universal have had an impact and pushed WMG up by around 25%? It is certainly possible.
In June, Vivendi confirmed it would float its subsidiary on the European markets. Warners started the month at $35.85 and closed it at $35.89. At least in the medium term, it seems unlikely the news about Universal would have had any impact on how the markets viewed WMG.
In August, when it was announced that Pershing Square Holdings was buying a stake in Universal, WMG started the day at $35.18 and closed at $35.15. Yes, the price did go down, but by such a small amount that the change could be described as negligible. In fact, it could be argued that the Universal news could have caused more confidence in the music business and pushed prices up.
In short, it appears that, overall, the Universal IPO does not seem to have had much of an effect on the WMG share price and, by extension, the Warner Music stock forecast.
WMG stock forecast
On 9 September, the WMG share price closed at a straight $40, which meant it was up by a little less than 40% from where it had opened on 10 September 2020 and up 60% from what it was valued during its initial public offering. While this has not quite been an explosive rise, that does represent a significant return on investment and should – cautiously at this stage – be seen as a successful move by the company.
Looking at the WMG stock forecast itself, when CNN surveyed 14 experts for their 12-month predictions, the median prediction of $41.50 represented a modest 3.5% rise in value. The most optimistic WMG stock forecast for 2021 and 2022 saw it rise by 20% to $48, while the most pessimistic of the WMG stock predictions anticipates a drop of 15% to $34.
When the news giant got 16 analysts to give their recommendations, the largest decision was – in keeping with the modest potential price rise – for people to hold their stock. Eight of the analysts gave that advice, with seven saying people should buy WMG and one suggesting people sell it.
It might be. There does seem to be some cautious optimism around the company, although that optimism is not, if you’ll pardon the pun, universal. Things can change and there is always the possibility that the price of WMG shares could fall hard.
It could. The general consensus among analysts seems to be that it will rise slightly over the next 12 months. That said, there are predictions the price could go down, so you will need to do your own research before investing and remember that prices can go down as well as up, and you should never invest more than you can afford to lose.
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