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FTSE 350 media: Cash returns to boost media

Performance prospects are more muted after a strong year for media sector shares, but the prospect of cash distributions to shareholders should sustain investor interest
January 18, 2013

As every journalist knows, the internet has undermined the traditional business models of many media groups. Yet they have fought back by finding new revenue streams and diversifying into new markets - that, at least, is what Mr Market concluded in 2012, when the sector raced up 19 per cent.

Most of that performance came in the second half, after a reassuring results season. Exhibitions group Reed Elsevier (REL) shrugged off concerns that its legal and scientific publishing businesses are threatened by the open-access movement - the global effort to provide free online access to scholarly research. Trade magazine group UBM (UBM) showed strong revenue growth in events, particularly from emerging markets, while ITV (ITV) beat expectations, showing that for now television remains the most attractive platform for mass advertising. The only faller was Pearson (PSON), owner of Investors Chronicle and a major textbook publishing franchise, after a strong run between 2009 and 2011.

What the re-rating doesn't reflect is the prospect of a cyclical recovery in advertising spending, which looks elusive. In fact, analysts last month downgraded their forecasts for global advertising growth to 4.3 per cent this year, according to broker Numis Securities, most of which will come from emerging markets, particularly Latin America. In western Europe growth is expected to be just 0.2 per cent.

Fortunately, the advertising agencies are already well represented in growth markets. WPP (WPP) makes two-third of its sales outside western Europe, and Aegis (AGS) - soon to be bought off the market by Japanese rival Dentsu - makes 36 per cent of its sales from the fast-expanding digital channel.

The promise of cash returns also stimulated performance last year, according to analyst Ian Whittaker at Liberum Capital. The sector has paid down its debts and made no major acquisitions, so 2013 could be a year for handing capital back to shareholders. Such expectations may continue to push shares in cash-rich companies higher. Otherwise, performance will probably continue to be driven by the nitty-gritty business of finding out, in the real world of cash earnings, which media business models are sustainable in an increasingly digital world.

 

 

COMPANY NAMELATEST PRICE (P)MARKET VALUE (£M) PE RATIODIVIDEND YIELD (%)PERCENTAGE CHANGE IN 2012LAST IC VIEW
AEGIS 2362,764200.962.6Hold, 177p, 16/03/12
BRITISH SKY BROADCASTING77712,58514.83.34.7Buy, 720p, 2/08/12
EUROMONEY8921,10910.52.239.3Hold, 789p, 15/11/12
INFORMA4632,789123.924.3Buy, 350p, 25/07/12
ITE 24460718.82.720.7Buy, 214p, 4/12/12
ITV1094,26012.81.854.4Buy, 74p, 27/07/12
MONEYSUPERMARKET.COM16186624.4349.5Sell, 141p, 11/10/12
PEARSON1,2059,84514.13.6-1.8No view
PERFORM 39293648.4089.9Buy, 378p, 30/08/12
REED ELSEVIER6537,832163.423.7Hold, 541p, 26/07/12
RIGHTMOVE1,4521,50125.11.415.4Hold, 1588p, 1/08/12
UBM7411,81912.13.650.8Buy, 643p, 30/07/12
WPP92111,64812.42.831.5Hold, 794p, 30/08/12