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Print has long-term value

Created:

15 February 2010

Updated:

16 February 2010

Written by:

Roddy Davidson

Newspaper companies have faced a perfect storm in recent times due to a combination of changing media consumption habits, increased competition, rising newsprint prices and a dramatic collapse in advertising revenues.

However, there are signs that better times lie ahead. Specifically, recent news from Trinity Mirror, Mecom and Johnston Press has indicated that advertising spend may be bottoming out and there is a growing consensus among media commentators that 2010 will see a return to growth. Encouragingly, last week's trading update from Daily Mail & General Trust also revealed that, while management remains cautious, performance during the fourth quarter of 2009 was better than expected and that 2010 has started well with increased advertising revenue in newspapers and online.

It remains too early to call a full-blown press-advertising recovery, and some categories have undoubtedly been seriously compromised by online penetration. However, newspapers remain an important route to market for advertisers and any recovery would have a tangible impact on industry profitability. Lower newsprint prices should also be a positive factor.

Against this backdrop, our preferred plays are Trinity Mirror and Johnston Press. Both of these companies, which report half-year results next month, have aggressively cut cost through the downturn, enhancing the sensitivity of their profits to revenue growth and creating the possibility of potentially significant forecast upgrades. Once this process gets under way, we believe it will comfortably overshadow the impact of declining hard copy sales. The gradual development of more sophisticated charging models for proprietary online content could also lend a helping hand over the longer term.