MTG: “Uncertainty” over pay-TV prospects

Modern Times Group (MTG) unveils its results on April 18th, and market sentiment suggests the numbers may not be good. A report to clients from investment bankers Morgan Stanley states that while pay-TV in the Nordic region – where MTG mainly operates – is “well anchored”, and helped by MTG’s margin guidance of a 10-12 per cent EBITA margin, the operational trends are likely to remain negative with “significant medium term uncertainty”.

The bank’s report says: “MTG expecting net satellite and cable customer loss in 2013. Growth in third party customers is unlikely to offset satellite DTH declines. ARPU growth will be held back by churn and discounting.”

MTG is also likely to come under increased pressure this year with the closing of the Discovery/SBS deal, which itself will prompt tough multi-national competition from a seasoned operator. “The need to launch an additional channel to compete with SBS in Norway, which we expect in Q3 13, will mean that H2 13 opex is likely to rise YoY. We currently estimate +1 per cent opex growth in FTA Scandinavia in Q1 and +3 per cent for FY13,” suggests the bank.

Not helping MTG’s overall position are the pressures on its free-to-air business in Scandinavia. The bank says: “The latest independent estimates for Scandinavian advertising confirm the weakening trends identified by our media buying contacts in January.  Norway remains strong, with 1Q advertising expected to be up 3.5 per cent and FY13 up 4.4 per cent. Sweden is softer – IRM’s FY13 estimate has fallen from 1.7 per cent to 0.7 per cent, with 1Q now expected to be -2 per cent (was +2 per cent). Denmark remains weak, with MediaWatch expecting 1Q to be down 10-12 per cent, and FY13 likely to see declines of a similar level.”

MTG’s pay-TV expansion into new free-to-air and pay-TV markets (such as Latvia and the Czech Republic) is expected to show a modest loss, says Morgan Stanley, with increased Operational Expenditure and further investment in HD, technology and programming.

Morgan Stanley is forecasting group revenues of 3.27 Swedish Kroner.

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