Exane is pushing to buy the telco and sell the media...
not sure of that call as I don't see any improvement for telco without consolidation and that we continue to see biggest price war...the way mkt is moving in the US, with more consolidation and Content deal could drive a new logic in Europe...consolidation between Media & Telco could happen and in that way I will be long Media Short Telco have a look to the spread : {SXMP Index SXKp Index GRT D<GO>}
See Exane note details below & Attached :
- Two heavily underperforming sectors
Both Telecoms and Media have been consistent underperformers over both 2016 and 2017 to date. There are fundamental headwinds for both sectors, but in this note we argue the risk/reward on Telecoms is materially better than that of Media, aided by the current market backdrop.
- Telcos at an all-time relative low
In performance terms, Telcos has never been at a lower ebb relative to the market. Earnings downgrades, a lack of consolidation and weak sentiment have played their part. But Q2 reporting season has been better, and we see a favourable top-down environment for outperformance.
- This is a market for ‘Value’ and Domestic exposure
As we wrote recently in (Keeping it real) we see the risk of real yield expansion from a lack of inflationary pressures (underlying or otherwise). This is not positive for equity valuations, and should give relative protection to those sectors with higher ‘sustainable’ value. Coupled with the strengthening EUR this is a favourable stylistic backdrop for Telecoms.
- Earnings, Value, FX, Structural outlook, Seasonality
Running through the key facets of this relative debate, we see stark differences in the severity of headwinds facing the two sectors. Earnings risk, fundamentals and seasonal factors add to the topdown argument for a Telecom preference.
- Upgrade Telecoms to OW, Downgrade Media to UW
Underperformance is not always a temporary state, but for these two formerly-Neutral-rated sectors we decide the risk remains biased to the downside for Media, with the converse true for Telecoms. This leaves us with both ‘Domestic Defensives’ (Utilities and Telcos) overweight along with fellow domestic sectors Banks, Construction and Travel & Leisure.