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FTSE350 outlook: Broadcasting & media agencies

Created:
23 January 2008
Written by:
Amanda Vermeulen

The performance of television correlates to the economy, which is why 2007 was a good year for broadcasters while 2008 looks less certain.

Advertising

Analysts say that of all the commercial broadcasters, ITV enjoyed the best operational performance in 2007. In the first half, the company managed to rein in declines in adult impacts - defined as one person viewing one 30-second television advertisement. And, according to GroupM's UK Media and Marketing forecasts for 2008, ITV even grew adult impacts for the full calendar year - the first time since 2003 it has been able to report such good news. This year may not be so rosy, with advertising revenues expected to be around £40m lower at £1.56bn. Also hanging over both ITV and BSkyB is the final outcome, due by the 29 January, of the Competition Commission's recommendation that ITV rival BSkyB reduce its shareholding to 7.5 per cent from the current 17.9 per cent. At ITV's current share price of 72p, BSkyB faces a hefty £281m loss on its original £940m investment.

GroupM , which is part of WPP , says that, in the UK, growth in television advertising spend (adspend) will fall from 3-plus per cent in 2007 to around 1 per cent, with gross advertising revenues for the entire broadcast market likely to increase to £4.195bn from £4.159bn in 2007. What may help television revenues in 2008 are the advertising campaigns that normally accompany what are known as "quadrennial events", with $6bn (£3.04bn) already earmarked for the Olympics, Euro 2008 and the US elections.

Media agencies can expect varying performances, depending on their market niche. Rightmove carries property-related advertising and, with the housing market slowing down in many parts of the UK, the company is fairly exposed. PR and advertising agencies on the other hand, like Aegis and WPP, can look forward to a good year. The growing acceptance of 'reputation management' among listed companies has helped PR become the fastest-growing of all marketing services. After robust growth of around 5.5 per cent in 2007, this may ease back, however, to about 4 per cent in 2008.

The big growth story centres on internet advertising, so those agencies with a strong presence in this market will be the winners. ZenithOptimedia calculates that, in the next three years, internet adspend will grow almost 70 per cent, and will increase its market share by about 3 percentage points. In addition, agencies operating in developing economies are well-placed to take advantage of advertising growth there, which is outstripping that of developed countries.

Company name Price (p) Mkt val. (£m) P/E ratio Div. yld (%) 12M price chng.(%) Last IC view
AEGIS GROUP 100 1153.51 13.8 2.01 -28.57 Good value, 132p, 7 Sep 2007
BRITISH SKY BCAST.GROUP 506 8869.38 20.3 3.06 -8 Sit tight, 84p, 20 Dec 2007
ITE GROUP 143.5 360.65 15.3 3.14 -12.5 Good value, 165p, 4 Dec 2007
ITV 70.2 2730.17 13 4.49 -35.3 Fairly priced, 111p, 12 Sep 2007
MONEYSUPERMARKET COM 109 541.52 0 Fairly priced, 157p, 20 Sep 2007
RIGHTMOVE 368.25 476.51 26.6 1.36 -23.64 Sell, 489, 2 Dec 2007
TAYLOR NELSON SOFRES 169 695.89 12.2 2.84 -24.22
WPP GROUP 555.5 6577.09 12.3 2.15 -24.32 Buy, 669p, 19 Oct 2007

MORE FTSE 350 OUTLOOK SECTORS:

See also:

Telecoms

Publishing

Technology

Electronics & electrical equipment

For a full table of contents for the FTSE 350 Outlook series, click here.

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