As a result of these and other factors, S&P lowered its risk rating for WMG from fair to satisfactory and raised its credit rating from BB to BB +. BB is speculative grade, a cut below investment grade, meaning the company is “less vulnerable in the short term, but faces major uncertainties regarding adverse business, financial and economic conditions. “.
WMG’s stock price rose 4.4% to $ 36.85 on Tuesday, valuing the company at $ 21.4 billion. Part of Tuesday’s gain can be attributed to the rebound in markets from Monday’s pessimism about the surge in COVID-19 infections: the Nasdaq and the Dow each rose 1.6%. After WMG’s IPO in May 2020, its share price peaked at $ 39.61 on February 2, 2021.
Even though music rights acquisitions remain a hot market with increased competition and companies paying higher multiples in their transactions, S&P still expects WMG to use most of its discretionary cash flow on acquisitions. The agency adds that WMG spent around $ 370 million on music rights in the first half of 2021 and will likely spend even more using debt and maintain an adjusted leverage – debt / EBITDA ratio (earnings before interest, taxes, depreciation and amortization). ) – from 3.3 to 3.5 in 2021 and from 3.1 to 3.3 in 2022.
S & P’s âbaseâ scenario is as follows:
- The music label industry will grow faster than the world’s gross domestic product.
- WMG’s revenue growth “in teen percentage area in 2021” and “numerical high percentage area in 2022”.
- Improves margins through increased streaming royalties, cost reduction efforts and greater âfixed cost leverageâ.
- Discretionary cash flow (after $ 250 million in annual dividends) of approximately $ 320 to 370 million in 2021 and $ 400 to 450 million in 2022. WMG will spend all of its discretionary cash flow – and possibly more – in acquisitions over the next few years.