UMG’s Public Itemizing Boosted Warner Music Shares

Demand for UMG shares could have helped two extra music firms: the share costs of French music distributor Imagine SA and U.S. music rights firm Reservoir Media elevated 3.1% and 11.6%, respectively, on Tuesday.

Traders additionally appeared hungry sufficient for UMG to buy shares of Pershing Sq. Holdings, which has a ten% stake in UMG, and drive its share value up 5%.

Sensing a chance, WMG’s proprietor, Entry Industries, bought 2.34 million shares to Morgan Stanley & Co. on Tuesday for an unspecified quantity. WMG may gain advantage from the added liquidity to the market. Though the shares characterize lower than 0.5% of WMG’s excellent shares, WMG’s float – shares out there for buying and selling – characterize about 19% of its shares, in line with a number of monetary sources. (UMG says its float is 42% of excellent shares.)

For its half, WMG, which went public in 2020, has confirmed to be a dependable funding: earlier than Tuesday’s surge, WMG shares had been already 61% above the $25 IPO value. Going into UMG’s itemizing, 4 securities analysts gave UMG a ten% to 40% premium over WMG — which means they consider $1 in WMG’s palms could be value from $1.10 to $1.40 to UMG.

After WMG’s valuation rose to about $26.4 billion on Tuesday, UMG has a 14% premium over WMG. Utilizing every firm’s earnings earlier than curiosity, taxes, depreciation and amortization in 2020, UMG and WMG have multiples of 35.9 and 31.5 of worth to EBITDA, respectively. Had WMG shares not grown on Tuesday, UMG could be value a 28% premium over WMG.

The 2 firms’ values ought to be correlated to some extent: They’re equally structured – primarily document labels and music publishers – and affected by the identical market forces. Each music firms profit when Spotify and Apple Music unfold the subscription mannequin all through the world. They’ll every earn royalties from rising sources corresponding to Peloton and TikTok, value $235 million yearly for WMG’s document labels, CEO Stephen Cooper mentioned within the firm’s Aug. 3 earnings name. Likewise, labels and publishers are virtually equally uncovered to international pandemics, piracy and competitors from motion pictures and different leisure. If labels are at “the edge of a brand new golden age of music,” as Cooper acknowledged in WMG’s Nov. 3, 2020 earnings name, WMG and UMG will share the bounty.

There’s an opportunity the market misinterpreted UMG shares’ unbelievable run as a real measure of buyers’ curiosity. First-day buying and selling quantity was solely 6.8% of accessible shares, presumably as a result of not sufficient Vivendi shareholders, who obtain 60% of UMG shares by a one-off distribution, might fulfill buyers’ demand. As soon as the market has extra liquidity, provide will converge with demand, and the share value might higher mirror UMG’s true market worth.

UMG’s first-day market worth was, nonetheless, properly inside analysts’ estimations. A dozen securities analysts estimated UMG’s worth to be from $35.5 billion to $62 billion, with a median of $47.5 billion.

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