After 26 sets of results over the last 3 weeks, we review the European Media sector and wrap up the results. We remain Positive on the sector for two reasons – 1) We believe valuation is reasonable (sector at a 15% premium to the DJ Stoxx 600, below its long term average of c.20%), and 2) EPS momentum is decent, both within the sector
(average 1H EPS beat of 3% through results, 1% EPS 2016E upgrade) and relative to the market. Our work leads us to have no clear preference for cyclicals and defensives and our best ideas are balanced. Our preferred names are Havas, Moneysupermarket, Reed Elsevier, UBM and WPP. We believe that our preferences within the cyclicals are anti consensual – our sense from investors is that broadcasters are favoured over agencies.
* Broadcasters: All the broadcasters apart from RTL have reported, with the Northern
players (ITV and P7S1) posting strong and improving trends, while the pace of recovery
in France and Italy remains disappointing so far. In Spain, recovery is strong but seems
to be peaking. Investors' sentiment on the subsector is very positive, in our view. We
struggle with valuations - Broadcasters is our least favourite subsector in Media.
* Agencies: Agencies continue to post decent numbers globally but with the EU players
underperforming global peers, except Havas (who alongside WPP are yet to report).
Despite these decent overall numbers for the subsector, investors' sentiment is quite
negative, with structural concerns often mentioned in our conversations. Valuation is
well below history (4% below DJSTOXX600 on a P/E basis vs. 11% historical premium).
We view this as a buying opportunity and remain positive across the peer group.
* Publishers: The biggest surprises were 1) DMGT reporting worse trends in multiple
corners of their business, 2) Informa showing significantly better trends in Business
Intelligence, and 3) Pearson seeing further downgrades in 2016 as lost testing contracts
hit harder. Elsewhere, expectations were low for UBM and Axel Springer coming into
results and reiterated FY guidance was met positively. All was on track at Wolters - and
positive timing in 1H adds confidence to FY. Our preferred name is RELX – results were
a little better than expected (albeit not exciting), and we see a story of steady delivery at
a reasonable valuation vs defensive large caps in other sectors (17x 16E P/E).
* Internet: The biggest surprise was Schibsted where better margins drove rare
upgrades. Elsewhere, all is on track at Rightmove and AutoTrader. Both have rerated
materially and investor sentiment is positive. Moneysupermarket’s results didn’t get the
share price reaction that better results merited, in our view, likely a result of the
subsequent Martin Lewis placing. Moneysupermarket is our preferred name – 19x 16E
P/E is the best value in the peer group for the growth on offer, in our view.
* Satellites: Reduced 2015 guidance from SES was very unexpected, particularly the issues
with data pricing (attributed to a currency mismatch re their customers). The fact that
neither Eutelsat nor Intelsat had caught the SES data cold when they reported makes SES's
situation harder to understand. Eutelsat, we think unfairly, did not see share price relief from
somewhat reassuring results, given SES added uncertainty to the whole subsector.