UBS is keeping faith with Universal Music Group (EURONEXT:UMG) and reckons the recent slowdown in streaming growth is just temporary.
Looking at the disappointing recent update, UBS concludes it is a temporary slowdown in global subscriber growth, as some major platforms feel the consequences of price rises without investment in their product, that will recover.
“Paid streaming remains a highly attractive consumer proposition (all music ever recorded, on-demand for only c$10 p/m), and there is a path to re-acceleration over the next 12 months which is not priced in.
“Even without paid streaming re-acceleration, UMG still offers double-digit EBITDA growth to 2026 driven by c5% top-line growth, and delivery of cost savings.
“Further, valuation is underpinned by its back book, which we estimate generates c€3bn of FCF, and could be worth 80% of the current UMG market cap.
“Given UMG's recent de-rating, falling yields, and increasing market volatility, it offers an attractive risk-reward for a high-quality asset with defensive revenue.”
Buy with a €26 target, down from €32.50, is the view.
Shares in the Amsterdam-traded UMG are €21.29.