Barclays upgrades MFE after 76% Pro7Sat1 buyout, €315 mln synergies ahead

Investing.com -- Barclays has upgraded MediaForEurope (BIT:MFEB) (BIT:MFEA) (MFE) A and B shares to “overweight” after the company acquired a 75.61% stake in German broadcaster Pro7Sat1. 

Shares of the Dutch media and communications company were up 4.7% at 08:34 ET (12:34 GMT).

Analysts cited inexpensive shares and potential synergies as key drivers. MFE A shares trade at 6x projected 2027 earnings under a €170 million synergy scenario, compared with peers at 10.3x currently and an 8.5x average since 2022. 

B shares were favored for their higher voting rights and relative scarcity, with new price targets of €4.15 for A and €5.50 for B.

MFE hosted a seminar to outline its post-acquisition strategy, projecting synergies between €261 million and €315 million, split 46-54% between revenue and cost. Pro7Sat1 management reported only lower-cost synergies. 

Analysts modeled scenarios from €0 million to €315 million, noting that delivering the top synergy target could boost 2029 EPS by 19%. 

Further upside may come from acquiring additional Pro7Sat1 shares, with each 1% increase in ownership adding 0.5% to 2027 EPS.

Achieving full ownership could lift EPS by 12%, while combined synergies and acquisitions could increase 2029 EPS by up to 45%.

Advertising trends are expected to remain weak in Germany and Spain in 2025, though Italy remains steady.

Analysts expect improvement in 2026 due to easier year-on-year comparisons and the FIFA World Cup.

Potential divestments of non-core assets and realization of synergies were cited as additional catalysts.

MFE intends to focus Pro7Sat1 on core operations and reinvest resources in premium content, pan-European monetization, technology, and AI applications.

“We don’t have direct access to the Executive Board, but as the majority 76% shareholders we can nominate Supervisory Board members . The Supervisory Board will play a role in implementing our strategy. Some Board member could resign as Pro7Sat1 shareholding has changed. If nothing happens, we will act,” CFO Marco Giordani said.

On potential early meetings, he added, “I’m sure the Supervisory Board members will be sufficiently professional to take action. In a pure theoretical case, if nothing happens, we will not wait for the next AGM but we do not think that will happen.” 

Two PPF Supervisory Board members resigned on September 18, reflecting the new shareholder structure.

Barclays analysts flagged the remaining 24.39% free float as a potential target for incremental share purchases, delisting, or a squeeze-out once thresholds are reached. 

Under German law, shares can be acquired above 30% without a premium, and no disclosure is required between 75% and 100% ownership. 

Analysts estimate that buying 5% of daily trading volume annually would cost €124 million and add 0.1x to gearing. MFE’s debt-to-EBITDA ratio is projected to peak at 3.4x in 2025 before declining to 1.2x by 2029. 

Giordani noted, “from a legal point of view, we have no communication obligation and we can buy on the market at any price. For the time being, we have no plan for that but formally speaking, we can buy on the market at the price we want.”

Barclays said the upgrade reflects the combination of low valuation, potential synergies, and MFE’s ability to consolidate Pro7Sat1’s financials and implement its growth strategy.