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On Thursday, BofA Securities analyst Adrien de Saint Hilaire increased the price target for Universal Music Group NV (AS:UMG:NA) (OTC: UMGNF) to €24, up from the previous €22, while maintaining an Underperform rating on the stock. The adjustment was made in response to Universal Music Group’s stronger-than-anticipated subscription growth in the fourth quarter of 2024 and the potential benefits expected from new wholesale agreements with Digital Service Providers (DSPs).
De Saint Hilaire noted that the company’s subscription growth exceeded expectations, leading to a revision of the 2025 estimated subscription growth from 7% to 10%. Despite the improved price objective, the analyst decided to retain the Underperform rating due to several concerns. The increase in subscription growth was partially negated by reductions in ad-supported streaming, which appears to be a more structural slowdown rather than a cyclical one. Additionally, market expectations for margin expansion were deemed ambitious.
Further points of caution included Universal Music Group’s Free Cash Flow (FCF) conversion, which continues to underperform according to the analyst’s perspective. Moreover, when evaluated on a 2025 estimated EV/EBITDA multiple, Universal Music Group trades at a 25% premium compared to Warner Music Group (NASDAQ:WMG).
The analyst also compared Universal Music Group’s revenue and EPS growth with other companies, stating that while UMG’s 2025-2028 estimated compound annual growth rate (CAGR) of 7-10% is commendable, it does not surpass that of less cyclical and more predictable companies such as RELX and Wolters Kluwer (AS:WLSNc). These companies also boast stronger FCF generation. Despite this, UMG’s shares are trading at a 30% premium based on the 2025 estimated FCF yield of 2.8%.
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