Warner Music selloff on BMG news likely overdone, says Citi

Citi says the selloff in shares of Warner Music Group after BMG announced it will end its recorded music distribution agreement with Warner is likely overdone. Of BMG’s $900M in revenue, Citi estimates 40% is recorded music revenue. As such, this implies Warner Music’s gross revenues will likely fall by $365M once BMG begins to distribute its own music, the analyst tells investors in a research note. The firm estimates the implied hit to Warner Music’s equity value is, at most, $1 per share. As such, it believes the $2.70 decline in Warner Music’s share price this week is likely an overreaction. The firm has a Neutral rating on the shares with a $34 price target.