German free-to-air broadcasting group ProSiebenSat.1 has issued its third profits warning of the year, and the market has all but abandoned the company’s stock. A note to investors from investment bank Berenberg says that management changes could be the consequence.
Just two years ago (on November 20th 2015) Pro7/Sat1 share price topped €50. The decline over the past year has seen share values plummet to today’s €25. Despite these falls, Berenberg believes the share price undervalues the company and advises investors to “Buy” and issues a target price of €38 for the stock.
“While we are cutting our price target to reflect downgrades, we believe that the current valuation fundamentally undervalues the overall portfolio of assets in the group.”
Berenberg says “This time it was not about advertising: If there was a silver lining in this downgrade, it was that it did not actually involve advertising share, about which investors have worried. Advertising market share has recovered in Q4, as expected, and for the first six weeks of the quarter, TV advertising revenues are up by c5 per cent. The comparables do get tougher in December, but this was not a warning about advertising: it was about content, with half the downgrade coming from content sales phasing issues – revenue will now fall into 2018 – and the rest due to higher programme spend in Q4.”
“Excluding online content spending, we estimate that TV content spending was flat to slightly down reflecting weak TV advertising revenues in the period,” says the bank. “With a stronger Q4 trend, management is reinvesting in the schedule. The idea of matching programming spend to advertising trends is well recognised.”