MediaWatch – A two-tier story

There is a dissonance in the performance of the media sector. In Q225, the market value performance was very strong, up 19.7%, but this followed on from a quarter when the value declined 7.7%, giving an overall gain for the half year of 10.5%. What this truly shows, though, is the performance of just two stocks, Alphabet and Meta, which between them represented 63% of the entire value of the three regions analysed at the end of June. Digging beneath the surface, the picture is far less buoyant, particularly in regard to the continuing downward revisions to sales and EBITDA forecasts for CY25 and CY26. In our analysis, we highlight stocks trading below their long-term average ratings in the UK, continental Europe and North America. We also highlight those with positive earnings momentum (ie improving EBITDA forecasts). The overwhelming majority of stocks look attractive in terms of rating, with some areas of overlap with better profit prospects, with interactive home entertainment (particularly games stocks) having positive indicators in the UK and continental Europe. Underlying valuation metrics across the sector remain very subdued and overall cash and financing positions are reasonably robust. We would therefore expect any sustained improvements to sentiment to result in narrowing discounts relatively quickly.

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