31 July 2009
[email=media@db]media@db[/email]
Professional v. pro-cyclical
Paul Reynolds
Research Analyst
(+44) 20 754-76539
paul.reynolds1@db.com
Mark Braley, ACA
Research Analyst
(+44) 20 754-59904
mark.braley@db.com
Patrick Kirby
Research Analyst
(+44) 20 754-73560
patrick.kirby@db.com
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1. MICA(P) 106/05/2009
Periodical
Euro Media Sector Performance
31/7/09
A S O N D J F M A M J J
50
60
70
80
90
100
110
DJ STOXX 600 E - PRICE INDEX
DJ STOXX 600 MEDIA E - PRICE INDEX
Source: Thomson Datastream
Table of Contents
Antena 3 Pg 03
BSkyB Pg 04
Informa PLC Pg 05
Mediaset Pg 06
Mondadori Pg 09
Pearson Pg 11
Publicis Pg 20
RCS MediaGroup Pg 26
Reed Elsevier (UK) Pg 28
Seat-Pagine Gialle Pg 29
TF1 Pg 31
Wolters Kluwer Pg 35
Global Markets Research Company
Professional publishers: 5 results this week, co. level organics ranging from 0%
(Pearson) down to -15% (UBM). The stand-out drops were at businesses we knew
to be cyclical – e.g. Informa conferences down 30%; UBM print magazines down
24%. The “defensive” business streams are just about holding up – Informa
Academic Information up 4%, Reed Science up 5% and even Reed Legal (albeit
stripping out the bad bits) up 1%. And that – “the bad bits” - is one of the themes:
the downturn is bringing to the surface instances of business models that are past
their best structurally: UBM management has long talked about its print mags as
challenged, but with margins down to 4% in H1-09 this operation really is running
out of road; Reed’s Legal directories business (effectively yellow pages) at -29% in
H1 – with hindsight should previous management have just exited this long ago,
rather than trying to reposition it as a “provider of legal marketing solutions”.
In terms of share price action, we make two observations: 1) we can’t get away
from the fact that professional publishers as a whole are late cycle – at a co. level
every name is likely to post lower growth in H2-09 than in H1-09 and some lower
again in H1-10. Across the five stocks we see only one business unit that might be
less bad in H2-09 (for reasons other than seasonal mix or phasing): Informa’s
conferences business, as its revenue comp is rather easier, 2) we expect an
increased pace of portfolio rationalization / re-shaping: Reed Elsevier management
will likely try to get ahead of the technology curve in their portfolio as well as
within their businesses; Pearson have started to restructure Penguin for the digital
era; UBM have started (modestly) to acquire again.
Our major EPS moves were in Pearson (upgrades, more market share capture) and
Reed Elsevier (downgrades, revenue and (our assumption) even more catch up
spend in 2010, plus a dilutive placing). After a very volatile week, current 2010E PE
ratings are (descending order): Pearson 13.2x, Reed Elsevier 10.4x, Wolters
Kluwer 9.7x, UBM 8.6x, Informa 7.6x. We rate Informa (tgt 440p) BUY – some of
the portfolio is early cycle, and while large scale events (aka trade shows) are late
cycle, we think that Academic Information should be fairly robust in 2010. We rate
Pearson (tgt 570p) SELL – its market share capture this year sets an even higher
bar for next year, in an environment where customers will be under even more
funding pressure. Overall we see continuing cyclical rotation away from the
professional publishing group, and finding stocks to rotate into in Media is hard.
One potential pro-cyclical name is our non-consensus BUY on Mediaset (BUY, E5
tgt). Mediaset reported Italian EBIT 9% ahead of DB estimates largely due to
better cost control in Italian TV operation. A number of small positives see us raise
2010 EPS 3%. Adspend is sequentially improving and with the shallowest
downturn – Mediaset has a good chance of getting back to flat revenues (or
better) in 2010. Finally on pay TV we saw losses narrow on strong revenue growth
and a new 3 year pay TV football deal secured, which removes another potential
investment negative. Mediaset is attractively valued on 7x 10E EBITDA vs peers
on median 12x EBITDA and has one of the highest sector yields at a secure 8%.
With EPS starting to move up and hidden value in the pay TV business, we
consider the shares attractive and reiterate our BUY.