weak 2017, driven by EPS cuts and de-ratings
Media underperformed the market by 11% this year after -7% in 2016, making it one of the worst
performing sectors for the last two years. This was driven by negative EPS revisions coupled with
sometimes brutal de-rating of many names/segments, reflecting intensifying structural changes in
consumer habits. Agencies joined the ranks of TVs and Satellites as challenged sectors.
We expect structural concerns to continue in 2018
History shows that structural challenges tend to accelerate rather than abate. Ecommerce,
consumption of content online and advertisers’ quest for efficiency won’t go away next year.
Low multiple not synonymous with cheap given EPS downside; prefer structural winners
It is tempting to turn more positive on stocks with low multiples and expectations. We resist that
idea. Bearing in mind that EuroZone PMI are at peak levels, we are mindful that TVs combine
structural and cyclical risk. Agencies too, but to a lesser extent. We thus favour solid, ideally
subscription-based models with limited exposure to disruptive trends: Pro. Publishers and Online.
Brexit ‘No Deal’ scenario brings EPS risk to UK domestics but a lot in the price already
We review the various UK scenarios and are more sanguine on the risk of Brexit. We note our UKlisted
coverage is mostly either i) multinational, or ii) operating a defensive revenue model.
Furthermore, in our view, following the recent sharp share falls, the more vulnerable UK domestics
are arguably already pricing in a negative Brexit scenario. Professional information remains a
relative safe haven. Brexit can impact our coverage through forex shifts and macro/operational
factors. We are more cautious on the scenario of a Corbyn administration for domestic UK Media.
Our key picks: VIV, UBM and Ascential
Where we are cautious: WPP, Pro, SES, Southern European TVs.