Russian Media: “Exceeding expectations”

A major 60-page report from investment banker Morgan Stanley on Russian Media states that the sector, in particular the Internet segment, looks set to exceed expectations into 2014. The report looks closely at a handful of products and operations in particular local eCommerce suppliers Yandex and ‘Mail.ru’ as well as broadcaster CTC Media. All have ‘western’ share placings.

The bank says: “While accurate data is scarce, eCommerce has reached a critical mass in Moscow and, at last, credible distribution has extended to the top 20 cites in other regions. We met some emerging private companies (such as Lamoda, Ozon, Avito) but Yandex is also a key beneficiary:
a) Post deal with Mail, Yandex controls ~75 per cent of search spending in Russia. With anecdotal evidence of over 50 per cent growth in relevant websites, the market leader will initially take a disproportionate (80-90 per cent) of budgets from new SME/ eCommerce advertisers, in our view.
b) Yandex.Market comparison site is a key growth driver for the company and natural eCommerce partner. The evolution of Yandex.Money may also lead YNDX into a more direct eCommerce role.
c) In developed countries, eCommerce is driving usage, engagement and pricing growth. This will be true in Russia we believe into 2014.

As to CTC Media, the bank says “CTC is performing relatively well and we increase our target from $12 to $12.5 to reflect more optimistic market advertising forecasts. Relative to the start of 2013 we have been encouraged by: (a) the resilience of the TV advertising market that looks set to grow 10 per cent in 2013 despite a softer macro environment. We see evidence of modest deferrals but no evidence yet of budget cancellations. (b) a pick-up in CTC’s audience share in 2Q after 12 quarters of declines. With easy comps and fewer re-runs due in July, the outlook for 3Q is positive, we believe, and audience share growth in 4Q looks possible. Combined with robust cost discipline, these factors should enable CTC to deliver 2013 results in line with both management guidance and current consensus, in our view – 10 per cent revenue growth, 32 per cent EBITDA margin, $1.03 EPS.”

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