Media
Professional publishing
We continue to see good value in the media sector, and believe some of the
strongest business models reside with the professional publishers. The
migration from print to digital (now 49% of industry sales), and limited exposure
to advertising, should help the key players weather the downturn.
Table 1 : Key forecasts
Old
Rating
New
Rating
Old
TP
New
TP
Current
Price
2009
P/E
2009
dividend
yield
2010
FCF
yield
Reed Elsevier Plc Hold Buy £5.70 £5.90 £4.96 9.8 4.6% 10.5%
Reed Elsevier NV Hold Buy € 9.8 € 9.6 € 8.2 9.9 4.7% 10.4%
Wolters Kluwer Buy Buy € 18.0 € 17.0 € 11.6 7.7 5.9% 12.7%
Pearson Sell Sell £5.90 £5.90 £6.90 11.8 5.0% 7.2%
ThomsonReuters Plc Hold Hold £13.85 £14.00 £15.40 13.4 5.0% 7.0%
UBM Buy Buy £6.30 £6.30 £4.53 7.8 5.6% 11.9%
Informa Buy Buy £3.77 £3.77 £2.49 5.9 5.4% 20.8%
DMGT NR Hold NR £2.30 £2.37 6.8 6.2% 14.4%
Source: Bloomberg, ABN AMRO forecasts
Professional publishers: a structural growth story in a challenged sector
Professional publishers are successfully moving their business models online, and
increasingly sell digitised proprietary content to their customer base. This content is often
bundled with software and sold as productivity-enhancing ‘workflow solutions’. As publishers
migrate from print to digital (digital is currently 49% of industry revenue), so customer
retention rates and pricing power improve. Dependence on advertising has reduced to just
10% of industry sales. We forecast just a 2% decline in industry sales in 2009.
The professional publishers are a diverse bunch; we compare and contrast
While there are some uniting themes within the sector, each professional publisher has its
own specific set of exposures. We compare and contrast this diverse group.
Valuations (for the most part) look attractive
Professional publishers have an average 2009 dividend yield of 5.1%, and 10.6% FCF yield.
Medium-term earnings are underpinned by announced cost savings totalling £1.6bn pa.
We upgrade Reed to Buy, initiate coverage on DMGT at Hold
We upgrade Reed Elsevier to Buy. The shares trade below 10x 2009F P/E, their lowest since
the company was formed in 1993, yet in our view the asset portfolio is of a higher quality
than ever. The risks we identified in December have now largely receded. We reiterate our
Buy call on Wolters Kluwer, a regulation play whose portfolio should prove relatively
defensive. We rate ThomsonReuters Hold, as we consider the assets high quality but are
concerned by the scale of potential slowdown in Markets. We stay at Sell on Pearson. Of the
mid caps, we initiate coverage on DMGT at Hold (with 78% of profits in 2010F coming from
B2B), and reiterate Buys on UBM and Informa.
Contents
Executive summary 2
We see some of the strongest business models in the sector within the professional
publisher subsector. We upgrade Reed to Buy, while reiterating our Buy calls on
Wolters, UBM and Informa and Sell on Pearson. We initiate coverage on DMGT
with a Hold rating.
Professional publishing 3
Professional publishers are successfully moving their business models online, and
increasingly sell digitised proprietary content to their customer base (digital is now
49% of industry revenue). We set out key themes and stock ideas.
Company profiles 9
Reed Elsevier plc 9
Daily Mail & General Trust 23
Pearson 43
Thomson-Reuters 51
Wolters Kluwer 57
United Business Media 66