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FTSE 350: The digital fallout continues for media groups

Continuing to embrace the digital age will be crucial for London's listed media groups in 2017
January 26, 2017

Price comparison websites, which compete for our attention with fairly irritating adverts, have now brought that fight to the stock market. Moneysupermarket.com (MONY), a long-time listed player, was joined in late 2016 by Gocompare.com (GOCO), which demerged from parent company Esure (ESUR). Look out for more listed price comparison websites in 2017: Comparethemarket.com owner BGL was scheduled to float in the first quarter. And although Admiral (ADM) is currently keeping its hands on Confused.com, industry experts have suggested that a successful float of BGL could make it reconsider.

Tighter regulatory controls could play a bigger role for the entire price comparison market in 2017. In September the Competition and Markets Authority (CMA) launched an investigation into the extent these sites really help customers save money.

In the online estate agency space, Rightmove (RMV) and Zoopla (ZPLA) have so far successfully tackled competition from agency-run Onthemarket.com. Meanwhile, widespread concerns over a Brexit-fuelled slump in consumer spending hurt Auto Trader's (AUTO) shares over the summer. But recent figures revealed that the group’s website still receives four times the number of visits as close competitor Gumtree, which helped the share price recoup much of its decline.

Elsewhere in the industry, dwindling demand for physical books and an increase in free online information continues to hurt publishers. Their solution? To chop and change business structure so that it better suits today’s customer demand. RELX (REL), formerly known as Reed Elsevier, has transitioned fairly smoothly from print publisher into a specialist content powerhouse. Informa (INF), on the other hand, has been slower to embrace the digital age and its academic book and business information divisions have suffered. Pearson (PSON), too, has struggled. Although the sale of the FT Group and Economist titles in 2015 shielded it from the difficulties blighting the British newspaper industry, the growth in free online courses has hurt its top line and its shares plummeted in January after the company warned on profits and said it would rebase its dividend.

Ditching the publishing division of its business altogether has worked wonders for UBM (UBM). The company has thrived as an events-only business, having sold PR Newswire in June 2016. Ascential's (ASCL) first months as a listed company have proved positive thanks to the popularity of its Cannes Lions marketing festival. Events will remain a crucial division for the publishing groups in 2017 and we may see more abandoning their flailing print businesses as UBM has done.

 

Price (p) Market value (£m)PE (x)Yield (%)1-year change (%)Last IC view
Ascential2941,17612.80.5NAHold, 246p, 03 Aug 2016
Auto Trader Group4003,93627.90.7-1.4Hold, 395p, 08 Dec 2016
Euromoney Inst. Investor1,1791,28614.22.019.5Sell, 1001p, 25 Nov 2016
Informa6775,57916.83.023.8Hold, 725p, 01 Aug 2016
Moneysupermarket.com3031,65920.23.1-5.3Hold, 296p, 05 Aug 2016
Pearson5734,7118.99.1-17.2Sell, 583p, 18 Jan 2017
Relx1,42615,45222.12.324.7Hold, 1455p, 01 Aug 2016
Rightmove4,1213,840311.17.7Hold, 4089p, 28 Jul 2016
UBM7292,87021.53.043.7Buy, 681p, 01 Aug 2016
WPP1,85823,79818.42.630.9Buy, 1760p, 02 Nov 2016
Zoopla Property3401,42326.81.170.8Hold, 345p, 01 Dec 2016

Favourites: Advertising titan WPP (WPP) remains a firm favourite. The market leader has benefited from a rise in advertising spend across the majority of its sectors. Its investment in technology and geographical expansion has also helped boost profits. Momentum is behind the share price, which recently climbed to its all-time high, and we think there’s further to go.

Outsiders: We are currently recommending that investors offload shares in Euromoney Institutional Investor (ERM). The business-to-business publisher has struggled as many of its main customers – including investment banks – have been forced to cut costs due to the current economic environment and related industry retrenchment. Efforts to move away from these embattled industries have, so far, failed to galvanise a recovery in the group’s profitability, although there were areas of improvement at its last full-year results.