Universal Music Group (UMG.AS): Balancing secular opportunities and risks; Initiate at Neutral with €19 Price Target

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Universal Music Group (UMG.AS): Balancing secular opportunities and risks; Initiate at Neutral with €19 Price Target

Goldman Sachs Universal Music Group (UMG.AS)

established artists in developed markets as well as in talent in emerging markets)and in a

wider array of capabilities to support artist discovery, servicing and in distribution. Our

outlook for Adjusted EBITDA growth of 7.3% CAGR through 2028E is below

management’s 10%+ framework, while EBITDA margins remain relatively stable around

~21-22%. We believe the key debate is less about margin expansion and increasingly

about the company’s ability to sustainably compound EBITDA dollars over time.

Debate #3: What would it take for investors to get comfortable with increased catalog

investment and the quality of Free Cash Flow?

Our view: The strategic rationale is clear, but the financial return profile remains

debated. UMG has committed nearly €2.5B toward catalog acquisitions since 2020,

representing roughly ~50% of cumulative free cash flow over the period. While these

investments help expand UMG’s rights portfolio, reinforce competitive positioning, and

protect against market share dilution, investors increasingly question whether these

investments have translated into worthwhile returns on invested capital. We note that

the market for music rights / catalog is competitive, with many financial sponsors (who

have access to low cost capital) having entered the market over the last decade. We see

opportunity for Universal Music Group to better detail the return profile generated from

these investments.

Valuation

At approximately 11.1x 2027E EV/Adjusted EBITDA and 22.8x 2027E GSe P/FCF,

UMG trades inline with peers on a growth-adjusted basis. We believe these multiples