The ‘M’ in M&A might have stood for ‘Media’ in 2018. Indeed, acquisitions constituted a key strategy for some of the largest global players in this sector. In the US, against a backdrop of intense competition from streaming giants Netflix (US:NFLX) and Amazon (US:AMZN), Walt Disney (US:DIS) won the bidding war for the media assets of 21st Century Fox. Meanwhile, Comcast (US:CMCSA) eventually snapped up Sky for £30bn – hence the latter’s absence from this year’s FTSE 350 review.
Looking ahead, we still believe that Entertainment One (ETO) could attract takeover offers. When we tipped the company, we thought Netflix might be a potential buyer. Thus, it was encouraging to learn last September that Netflix had commissioned a third series of EOne’s programme Designated Survivor. Adding to its hypothetical appeal, EOne’s content library was valued at $2bn (£1.6bn) as at 31 March 2018, up significantly from $1.7bn.
That said, consumers’ shift towards subscription-based viewing is accelerating the decline of the home entertainment market. EOne had to book a £57m one-off charge, largely against certain film distribution assets, during the half-year to September. It is currently transitioning its film distribution activities towards production.
ITV (ITV) has also grown its production wing, enhancing its ability to make its own content. ITV Studios enjoyed a 10 per cent rise in revenues over the nine months to September, with "good growth" expected over the full year. But the group did cite "some softening" in fourth-quarter net advertising sales.
Elsewhere in the sprawling media sector, and back on the M&A trail, events and specialist publishing group Informa (INFO) completed its acquisition of UBM for a whopping £3.9bn last June. True, this raised mid-year net debt to 3.1 times Ebitda, and entails considerable integration costs. But the deal could be transformative, and a reassuring 10-month update to October revealed in line trading. Moreover, events are arguably less vulnerable to disruption by tech conglomerates than other media sub-sectors.
Which takes us on to WPP (WPP): a marketing group that has struggled, like others, with the reshaping of the digital advertising industry. Still, we’ve seen signs of positive change. While new chief executive Mark Read cut full-year guidance in October, he subsequently launched a three-year "strategy for growth" in December. But there’s a price. 2019 will be a "year of investment". And we know that previously announced account losses will engender a headwind – particularly in the first half.
Name | Price (p) | Market cap (£m) | 12-month change (%) | Trailing PE | Forward PE | Dividend Yield (%) | Last IC View |
Ascential | 385 | 1,543.15 | 1.58 | 24.9 | 20.4 | 1.48 | Hold, 459p, 23 Jul 2018 |
Auto Trader | 445.3 | 4,175.43 | 25.44 | 22.6 | 20 | 1.37 | Sell, 457p, 08 Nov 2018 |
Entertainment One | 368.4 | 1,707.68 | 15.49 | 15.1 | 13.5 | 0.38 | Buy, 377p, 21 Nov 2018 |
Euromoney Institutional Investor | 1250 | 1,364.8 | 6.84 | 16.4 | 15.9 | 2.56 | Hold, 1,246p, 22 Nov 2018 |
Informa | 653.6 | 8,181.75 | -7.29 | 14 | 12.7 | 3.19 | Buy, 732.8p, 25 Oct 2018 |
ITV | 129.1 | 5,196.8 | -21.92 | 8.5 | 9.2 | 6.1 | Buy, 147p, 07 Nov 2018 |
Moneysupermarket.com | 289.1 | 1,550.5 | -15.62 | 16.9 | 15.6 | 3.65 | Buy, 331p, 19 Jul 2018 |
Pearson | 907 | 7,084.38 | 32.41 | 14.3 | 15.2 | 1.93 | Hold, 912p, 16 Jan 2019 |
Relx | 1646.5 | 32,387.29 | 0.4 | 19.6 | 18.1 | 2.44 | Buy, 1,515p, 25 Oct 2018 |
Rightmove | 466.75 | 4,166 | 2.34 | 26.2 | 23.9 | 1.31 | Hold, 4,906p, 27 Jul 2018 |
WPP | 863.4 | 10,894.59 | -36.68 | 8 | 8.3 | 6.95 | Buy, 888.5p,12 Dec 2018 |