Bank: ‘German media struggling’
October 25, 2019
By Chris Forrester
Analysts at investment bank Berenberg suggest that there’s “continued weakness in the German economy”.
“We have now had several warnings from Axel Springer, New Work is growing more slowly, and ProSiebenSat.1’s management has also indicated that the advertising market is being negatively affected by the poor economic climate in Germany, even if the consumer has not yet been affected (confidence remains high, unemployment low). We cut our estimates accordingly, but remain bullish on the long-term upside,” says Berenberg.
As to Pro7Sat.1 the bank adds: “While [Pro7Sat.1] cannot do anything about its cyclicality, its structural investments should ultimately render it more defensive. The improvement in the programming grid – ie more local programming – is yielding better audience results. The investment in Joyn is driving higher online consumption, which should support increased online video advertising revenues. The extra marketing for Flaconi is prompting accelerated revenue growth. Both Flaconi and Joyn, meanwhile, reduce the group’s exposure to the most challenged segment: traditional television ad-spend.”
The bank warns that potential buyers are circling: “With Mediaset and Czech Media Invest having taken, in aggregate, nearly 15% of the shares, the risk of being short has increased. Valuation is low, and, while the economy is not playing ball, what can be controlled appears to be working. Q4 should witness lower cost inflation and potentially a reversal of the Q3 advertising market share loss, implying a significant inflection point in terms of the yoy EBITDA development. We believe that the company could announce incremental savings (likely for 2020) with the Q3 results, which would help offset the weaker economic climate. There is also the potential for the sale of the US production assets, generating proceeds that could be used for reinvestment in structural growth, and in debt reduction.”