City Analysis: The prospects for media in 2019
January 15, 2019
Equity analysts at investment banker Exane/BNP-Paribas stress that despite generally poor stock market performances last year, Europe’s Media sector actually did well, with losses of only -4 per cent, against the wider state of the depressed market overall which slumped -14 per cent.
The bank’s report says: “After a c30 per cent share price decline for Agencies and FTA TV in 2018, valuations are more reasonable and consensus meaningfully revised down. Global PMIs remain in growth territory but are deteriorating. We see growing cyclical risk for ad exposed FTA TV and Ad Agencies. JCDecaux (-) is most exposed to a weakening China (and 20 per cent of its revenues). We remain cautious on WPP, Mediaset, Prosieben and Spanish TVs but see opportunity at RTL. We are Neutral on Publicis.”The bank is ‘Neutral’ on the UK’s ITV, and France’s M6 and TF1, but favours (“Outperform”) Eutelsat and SES in its ratings. It is ‘Underperform’ on Mediaset and WPP.
Brexit also figures in the bank’s analysis, although stresses that Brexit is likely to have a “limited operational impact” on European media. “In the context of the material uncertainty we are cautious on UK domestics despite the appealing valuations (e.g. ITV). Only a relatively small portion of our listed coverage is heavily UK domestic focused (AUTO, RMV, ITV), with the key large cap stocks – both UK listed (WPP, RELX) and European listed (VIV, WKL, PUB) operating a global footprint. Another tranche of our listed coverage have significant UK businesses (DMGT) but substantial footprints elsewhere. We see ITV as most exposed to Brexit newsflow (on the upside and downside).”
The bank’s report says that the French TV ad-market is worth c.€3 billion, with TF1 having a 45 per cent share and M6 25 ;per cent. “Within the media mix TV makes up c.30 per cent (vs 32% in 2002). The French TV ad market has historically been considered among the toughest due to its regulatory obligations. This could potentially change with the ongoing French Public Audio-visual reform. It is targeting among others: 1) addressable TV; 2) new advertising categories; 3) the advertising timing on the public channels. In our view the most likely changes are those related to addressable TV and new advertising sectors. As a reminder, M6 CEO Nicolas de Tavernost suggested that addressable TV could make up 10-15 per cent of the TV ad market in the next 5-7 years. With regards to new advertising sectors, he suggested it could grow the TV ad market by 5 per cent.”
The bank says it is more optimistic on German TV. “The German TV ad market has been historically more resilient to structural changes and the TV ad market has outpaced the ad market since its peak in 2007. Today TV still makes up around 22 per cent of the media mix vs digital at 35 per cent and print at 30 per cent. Within the TV ad market, RTL and ProSieben each hold c.40 per cent market share.”
“Despite a relatively robust macro, the growth for the German TV names has been relatively elusive over the last couple of years. With German indicators now pointing downwards, this could suggest further downside risk to the German TV names. However, from a media mix point of view, Germany remains our preferred TV ad market as it is the only European market where print still takes 30 per cent of the media mix (vs 9 per cent in the US), suggesting less risk of losing share in the near-term.”
“We believe RTL has disproportionally suffered from the multiple warnings of ProSieben over the last couple of years. We prefer RTL over ProSieben on a risk reward basis. The former’s revenue mix is more geographically diversified making it less reliant on the German economy. We also prefer the Freemantle (sic) production studios (c.25 per cent of group revenues) over the Red Arrow Studios. We believe the dividend of RTL is least at risk amongst all the European TV names. We forecast -1 per cent TV advertising growth for ProSieben and -1 per cent for RTL for 2019.”