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A major report from investment banker Morgan Stanley states that Modern Times Group is “structurally better positioned” for the future than its peers. The bank has upgraded its 2013 forecasts, themselves helped by good Q4 results unveiled last week.
The report takes a segment by segment view of MTG’s key businesses although pulls no punches in terms of MTG’s core Scandinavian coverage where “problems persist”. “Scandinavia (circa 70 per cent of MTG operating profit) has some of the most competitive Free-to-Air markets in Europe. Competition is set to intensify further this year with the entry of Discovery [following] the SBS acquisition. In Pay TV, MTG must adapt to evolving forms of OTT content consumption that are not necessarily to its advantage.”
In particular the bank cites MTG’s free-to-air efforts, where the advertising market has – like just about everywhere else in Europe – been under pressure. MTG’s Scandinavian broadcasting fell back by -6 per cent, y-o-y, despite the market overall rising.
“MTG’s combined satellite and cable subscriber base declined by -4k in the historically strong Q4. The company itself expects further net customer losses in 2013 and expects the historically high rate of ARPU progression to slow – we expect these trends to be apparent at the Q1/2 results,” states Morgan Stanley.
“Following Discovery’s acquisition of SBS, our contacts suggest that a new channel launch in Sweden could occur in H1, ultimately allowing SBS to take share from TV4 and MTG,” adds the bank. “We do not envisage the same scale of market share losses to SBS in Sweden as MTG experienced in Norway over the last two years, but the effect is likely to be felt in terms of increased competition for ratings as well as content, with new players pushing up the price of local language programming.”
So far, so bad. But MTG also has some key Eastern European markets within its portfolio, and it is these areas that are of increased interest to the bank. “Advertising revenue in the three largest markets – Czech, Bulgaria and Baltics rose 7 per cent on a reported basis (12 per cent constant currency) with costs up 2 per cent, producing an underlying margin of 17 per cent in Q4 (up from 13 per cent in Q4 11). The divisional numbers were dragged down by the operations in Hungary and Ghana which we believe were collectively loss-making,” states Morgan Stanley.
“This continues the trend of recent quarters, where MTG’s strong operational performance in the largest markets has been sufficient to drive revenue growth despite sluggish TV advertising. TV advertising in Czech Republic, Latvia and Lithuania was up modestly in Q4 but it was down in Bulgaria and Estonia.”
“We do not anticipate any major change to this trend in 2013. The uplift to operating profit in 2013 from modest market growth and share gains will be tempered only somewhat by the investment in a new channel in the Czech Republic and continuing programming spend. We continue to expect to see the benefits of operational leverage in this business coming through over the next few years,” says Morgan Stanley.