5 January 2009
Pan European Media Sector
2009 outlook: sector upgrade
to Neutral from Underweight
Paul Reynolds
Research Analyst
(44) 20 754 76539
paul.reynolds1@db.com
Patrick Kirby
Research Analyst
(44) 20 754 73560
patrick.kirby@db.com
Mark Braley, ACA
Research Analyst
(44) 20 754 59904
mark.braley@db.com
Upgrading sector to Neutral from Underweight
Having been Underweight media since October 2007, we see more attractive
value emerging. Forecasts have been cut 50% since the peak, forward PEs are
stabilizing around 7.5-8.5x and yields look both high and sustainable. Our
reservation on being aggressively more cyclical is that we are still too near the
beginning of the ad slowdown to believe the rate of change in decline is close to
improving. This rules out the later cycle agencies as outright Buys. But we
upgrade the sector to Neutral and raise Mediaset and Reed Elsevier to Buy.
Deutsche Bank AG/London
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LOCATED IN APPENDIX 1.
Forecast change
Top picks
Reed Elsevier (UK) (REL.L),GBP505.50 Buy
Mediaset (MS.MI),EUR4.05 Buy
Vivendi SA (VIV.PA),EUR23.36 Buy
United Business Media (UBM.L),GBP499.50 Buy
Media sector yield vs Market yield
0%
1%
2%
3%
4%
5%
6%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
DY-DJ STOXX DY-Pan-European Media Sector
Sector forward PE multiple
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Median change in adspend forecasts
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
Q308 Q408 Q109 Q209 Q309 Q409 FY-09
Early cyclicals Late cyclicals
Recommendation changes
New Old
GfK Hold Buy
Mediaset Buy Sell
MTG Hold Buy
ProSieben Hold Sell
Reed Elsevier Buy Hold
Wolters Kluwer Hold Buy
Global Markets Research Company
“Kicking the tyres” for cyclical value in the agencies and broadcasters
Typically, at this stage of the cycle, the debate is when to switch into ad recovery
plays (TV or agencies). TV is early cycle and operationally geared but with some
structural threats. However, we now see some value in this space, and upgrade
Mediaset from Sell to Buy, based on the likely shallow advertising slowdown in
Italy, expected turn in ad datapoints in Q209 and downside limited by a 7.5%
yield. Agencies are generically attractive ways to play recovery, but are late cycle,
and are only in the initial stages of their operating downturn. We believe it is too
early to buy WPP/Publicis outright but, on 0.5x EV/sales, Havas stands out among
agency valuations. Print media remains unappealing given combined cyclical and
structural pressures.
Reviewing our stance on Professional publishers
The publishers remain a relative safe haven. We have upgraded Reed Elsevier to
Buy. With management change and some “self-help” from the cost savings plan
and ChoicePoint integration, and on just a 9x 2010 PE, we see the valuation as
compelling. We reiterate our Buy on UBM: with balance sheet <1x net
debt/EBITDA, we expect sensible deals to improve the portfolio mix and drive a rerating.
The 5.6% yield is 2x covered in 2009 and is sustainable, in our view.
Credit where it’s due: sticking our heads under the bonnet again…
As interest rates come down, yield becomes more important as a valuation metric.
The Media is the 4th most levered European sector, yet offers one of the highest
dividend yields. But this yield could prove illusory if dysfunctional credit markets
mean debt refinancing is either unavailable or punitively expensive. We have
therefore included detail on liquidity/dividend potential for all levered companies in
this note. We believe secure high yielders like Mediaset (7.5%), Telecinco (7.6%),
Vivendi (6%) and UBM (5.6%) look increasingly attractive as interest rates decline,
and for these stocks, the yield looks to offer sustainabl