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FTSE 350: Media groups advertise growth

A strong advertising backdrop and digital gains should buoy the UK's largest media companies
January 29, 2016

In spite of technological change and volatile world markets, the UK's largest media companies fared well in 2015. Indeed, shares in FTSE 350 media companies bested the FTSE All-Share index by close to 20 per cent. A robust outlook for advertising spend and mounting demand for digital services promise to underpin another strong showing in 2016.

Many publishers have struggled with the shift from print to digital; RELX (REL), however, has breezed through the transition. The business information, scientific publishing and events group invested and made acquisitions in growth markets such as telematics, healthcare data and cyber security in 2015. Moreover, it phased out reference tools in favour of data-driven, decision-support solutions that help its clients save money and operate more efficiently. Informa (INF) has a similar transformation in mind, but the business intelligence, academic publishing and events company remains mired in restructuring. Management intends to invest up to £90m between 2014 and 2017 to launch new digital products, narrow its range of services and move towards subscriptions. The downside is that the group's final structure and long-term growth prospects remain unclear for now.

The sector's 'pure-play' media companies outperformed in 2015. Auto Trader (AUTO) - owner of the UK's largest online auto marketplace - carefully managed stock levels, hiked prices, launched new solutions and sold more premium services to retailers in the six months to 27 September. The upshot was a 9 per cent rise in monthly average revenue per retailer to £1,347. Price-comparison specialist Moneysupermarket.com (MONY) grew strongly and saved its customers an average of more than £240 on their annual motor insurance, credit card and energy bills. Moreover, it continues to invest heavily in technology, data usage and improving its customers' experience.

Leading online property portal Rightmove (RMV) was largely unscathed by the launch of rival OnTheMarket.com: it boosted average revenue per advertiser by a tenth to £740 a month in the first half of 2015, while its overseas and commercial businesses supplemented growth in its core operations. Arguably, the weak link was Zoopla (ZPLA) - OnTheMarket caused a 22 per cent decline in the number of agents listing properties on its website in the year to September 2015. But higher average revenue per agent and a strong showing from uSwitch - the comparison site it acquired in April where customers can switch their energy and communication services - leaves management confident of meeting market expectations for 2016.

 Price (p) Market cap (£m)PE (x)DY (%)1-year change (%)Last IC view:
AUTO TRADER GROUP          412                    4,121 50.40.1NAHold, 380p, 16 Nov 2015
EUROMONEY INSTL.INVESTOR          926                    1,188 13.22.5-7.9Hold, 968p, 19 Nov 2015
INFORMA          604                    3,920 14.42.124.0Hold, 577p, 29 Jul 2015
MONEYSUPERMARKET COM GP.          330                    1,807 23.62.536.9Hold, 334p, 10 Dec 2015
PEARSON          685                    5,620 10.37.5-44.3Hold, 751p, 25 Jan 2015
RELX       1,165                  12,938 19.92.34.6Hold, 1,142p, 27 Feb 2015
RIGHTMOVE       3,890                    3,710 34.81.077.2Hold, 3,511p, 29 Jul 2015
UBM          501                    2,217 13.04.3-1.3Buy, 489p, 15 Dec 2015
WPP       1,447                  18,735 15.92.93.4Buy, 1,324p, 26 Aug 2015
ZOOPLA PROPERTY GROUP          200                       837 23.81.926.0Hold, 240p, 02 Dec 2015
 

Favourites

Advertising titan WPP (WPP) - owner of Kantar and GroupM - is growing steadily and continues to use investments, acquisitions and partnerships with the likes of AppNexus and Snapchat to bolster its range of digital services and deepen its foothold in fast-growing territories and markets. Meanwhile, UBM (UBM) has become a more attractive pure-play events group following its recent £498m disposal of PR Newswire. The organiser of Black Hat, MAGIC and other industry events has also pruned its portfolio through acquisitions and disposals and offers balanced exposure to developed and emerging markets.

Outsiders

Pearson (PSON) is successfully shifting from print to digital products and zeroing in on preferred markets and territories, while its recent disposal of FT Group, which includes Investors Chronicle, and The Economist Group should provide firepower for investments and acquisitions. But the education group has been hit by cuts to school funding and changes to curricula in the US, and ongoing cost-cutting and restructuring efforts threaten to weigh on short-term profit. Meanwhile, Euromoney Institutional Investor (ERM) faces stiff headwinds in financial, commodities and emerging markets. The financial publishing and events group will soon unveil a new strategy, but we expect tepid sentiment and a weak backdrop to hold back the shares.