Fancy some good news? The media industry is undervalued by investors, with trade publishers and advertisers expecting to benefit from positive economic cycles in the coming years. That's according to Numis Securities said in an eyebrow-raising note this morning (not linkable) which set out a bullish position on publicly listed media companies.
The note says: "We find the media sector to be materially undervalued, particularly for the quality cyclicals in agencies and B2B which have fallen from favour as investors have rotated into more defensive professional publishers and pay-TV."
Numis also predicts more "corporate activity" (effectively M&A) at the smaller end of the market, as financiers root out well structured and robust businesses "as confidence returns".
It's an interesting riposte to the idea, brought on by the creative disruption brought by online access and the modernisation of advertising, that professional media businesses of all stripes are materially challenged. Here's Numis' sector-by-sector ratings:
-- Agencies: "We are positive on the agencies, with the larger groups acting as a proxy for global growth while the smaller agencies discount should narrow through the cycle."
-- B2B: "The last cycle has demonstrated the structural robustness and flexible cost bases of the B2B groups." Numis says it is optimistic about quality B2B media cmoapnies, "particularly those weighted towards events and online information".
-- Professional/Educational: Numis is impressed by the sector, which was a "safe haven" in 2011. Pearson has done some good "reshaping of its portfolio" and "we are warming to the Reed Elsevier Loading... investment case".
-- Consumer media: Numis says the sector's outlook is "widely divergent depending on revenue type, with online, display advertising and circulation revenues more robust than classified".
-- Broadcasting: As ever with City analysts, BSkyB Loading... remains a start with its 10 million paying subscribers. Numis goes further than most however and says "fears on football rights and increased competition are overstated."
Free-to-air broadcasting is "wickedly cyclical, but we believe more structurally robust than widely perceived".
Old assumptions evaporate, but money still rolling in
What comes through Numis's guidance is that long-held assumptions about the media industry's ability to generate cash are being torn up by analysts as the relationship between producers and consumers continues to change and economies waver.
Numis says the historic data on earnings and profits had been a good guide for share price performance throughout the downturn of 2007 and beyond, but this fell apart thanks to the Eurzone crisis.
There is uncertainty, but Numis is happy to tell its investors clients it can expect dividend payout yield of 3.4 percent, rising to five percent for WPP, ITV Loading... , and Reed. and DMGT, Informa and UBM closer to six percent.
It's worth noting that as the media industry itself - particularly on the consumer side - continues to obsess over revenue models, levels of access and the influence of Apple Loading... and Google Loading... over our businesses, there are countless big and small media players simply getting on with serving specific markets, And if you believe the analysts, some of them are going to make a shed-load of money in the coming years.
Picture from 401k on Flickr via a Creative Commons Loading... licence.
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