An investment bank has taken a close look at prospects for German broadcasting giant ProSiebenSat.1 Media, and doesn’t much care for what it finds. The result is that Berenberg Bank is recommending its clients to “Sell” stock and gives Pro7/Sat1 a price target of just €34 against today’s typical €45.69 per share.

The bank’s comprehensive 12-page report admits that the broadcaster is “fragrant and sexy, but [its current] valuation is too racy for us”. At the core of Berenberg’s concerns is the state of the German television ad-market, and the widely acknowledged threat to that revenue stream from on-line and digital media generally.

The bank asks: “While acknowledging the threat, management states that German TV advertising is less risky than its US counterpart, because print’s share of spend is bigger, and TV conversely smaller. However, there are reasons for the difference. The issue at hand is that broadcast consumption is declining, and there are now plenty more opportunities to serve TV-style advertising to consumers, be it in an environment of online video (YouTube) or in Newsfeed pages (Facebook).”

“We believe that management is doing the right thing in taking cash flow from the mature broadcast business and reinvesting it in higher growth operations such as online advertising and commerce. However, with 80 per cent of the value of the group residing in the broadcast business, we are concerned that structural pressures that have seen television advertising decline in the US market will also have a negative impact on ProSiebenSat.1 and other European broadcasters.”

Nevertheless, Pro7/Sat1 is holding onto the No. 3 Comscore position as far as Germany Top 20 unique sources of video (but significantly behind Google/YouTube, and Facebook) yet Pro7/Sat1 claims that it has a 49 per cent share of on-line video activity.

The bank adds: “Looking at it in absolute terms, we estimate that ProSiebenSat.1 generated c€90 million in terms of online video advertising revenues in 2014. This compares with €2,035 million in traditional TV advertising revenues, including that which the company recognises as media for revenues in its Digital & Adjacent division. From these figures it is clear that the net threat of the online video strategy of Google, Facebook et al is far from hedged.”

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