Given the seismic shifts in advertising and media consumption, commentators are wont to assume print publishing will go the way of the horse-drawn carriage. But as writers on a 155-year-old magazine, we're unashamedly bullish on the wider industry's longevity. Most media groups have found ways to adapt to the new world of tablets and smartphones.
Publishers have offset print declines by investing in digital technology, emerging markets and events. That strategy allowed professional publishing and events group Reed Elsevier (REL) to deliver underlying sales growth across its four divisions in the first nine months of 2014, which helped send the shares up a fifth. Education specialist Pearson (PSON), which owns Investors Chronicle, has adopted a similar approach by developing mobile, personalised and interactive content - although restructuring costs weighed on its profits last year.
'Metal Bulletin' publisher Euromoney Institutional Investor (ERM) has faced similar challenges, with the added problem of heightened regulation and hefty fines aimed at its customers in the financial services industry. Like its peers, it has responded by investing in digital and subscription-based products and 'must-attend' events such as Mining Indaba, the largest emerging market mining event. In a similar vein, UBM (UBM) has doubled down on events by acquiring peer Advanstar for $972m (£599m). That has created the largest events business in the US, opening up opportunities to 'geoclone' events in new regions.
Readers might expect advertisers to share the pain of publishers, but industry consolidation, recovering advertising budgets and strong emerging market growth offset sectoral pressures last year. Indeed, sales at global giant WPP (WPP) climbed over 8 per cent in the first nine months of 2014 (excluding currency movements, acquisitions and disposals), reflecting its focus on digital media and collaboration between its agencies.
Internet natives face different challenges. Despite strong growth in sales and user numbers at Zoopla (ZPLA), shares in the online property portal have tumbled since it floated in June. That may reflect the fact that 90 per cent of property professionals already use its service, meaning further growth may have to come from new business areas such as listing commercial and overseas properties. Meanwhile, with its rival now in the public spotlight, Rightmove (RMV) has been beset by fears that its best days of market disruption are behind it. Its rejoinder has been innovation in the form of selling advertising space in customer emails and delivering instant alerts to house-seekers. The more useful Rightmove can be to housebuyers, the more agents will be prepared to pay for it.
As traditional media and publishing groups fight to survive, international expansion, diversification and digital investments are likely to remain on their agendas. Those that can differentiate their content and carve out a niche should maintain their margins. But most of the big UK players are still changing direction rather than directing change, as Facebook and 'social news' site BuzzFeed are, for example. That leaves us concerned about the sector's long-term prospects.
| Company | Share price (p) | Market value (£m) | PE ratio | Dividend yield (%) | 1-year performance | Last IC view |
| Euromoney Instl. Investor | 1,016 | 1,302 | 14.3 | 2.3 | -24.3 | Hold, 1,020p, 21 Nov 2014 |
| Informa | 497 | 3,222 | 11.9 | 2.5 | -10.1 | Sell, 469p, 18 Dec 2014 |
| Moneysupermarket.com Group | 250 | 1,362 | 22.3 | 3.0 | 29.8 | Buy, 209p, 12 Nov 2014 |
| Pearson | 1,296 | 10,626 | 20.0 | 3.8 | -1.1 | NA |
| Reed Elsevier | 1,127 | 12,780 | 20.4 | 2.2 | 21.1 | Hold, 975p, 25 Jul 2014 |
| Rightmove | 2,253 | 2,195 | 25.0 | 1.3 | -12.8 | Hold, 2,302p, 31 Jul 2014 |
| UBM | 514p | 2,275 | 11.5 | 5.3 | -7.9 | Buy, 548p, 03 Oct 2014 |
| WPP | 1,434 | 18,873 | 17.0 | 2.5 | 6.2 | Buy, 1,252p, 27 Aug 2014 |
| Zoopla Property Group | 156 | 653 | 24.0 | 0.8 | NA | Hold, 189p, 25 Nov 2014 |
Favourites:
Shares in Moneysupermarket.com (MONY) topped the sector with a 27 per cent return last year. The price-comparison website posted double-digit sales and profit growth in 2014, and it is laying the groundwork for further gains by improving its website, data storage and aggregation engine. At 227p, its shares have risen steadily since our buy tip (184p, 1 May 2014), yet still offer a decent forecast yield of 3.9 per cent for 2015.
Outsiders:
Publishing, events and information group Informa (INF) has been weighed down by its troubled business intelligence division and the thriftiness of financial and pharmaceutical clients. Restructuring is well under way, but analysts don't foresee a turnaround before 2017. Informa recently bought US peer Hanley Wood Exhibitions, but we're doubtful that alone can rejuvenate growth. We stand by our sell tip (486p, 10 July 2014).
