The MISSION Group
MGI – Media & Games Invest
The Pebble Group
Sentiment has been fairly stable across the full-year reporting season, with a decent Q422 performance despite tougher comparatives, providing full-year numbers with relatively few surprises. Outlook narratives have remained circumspect, though, with macroeconomic uncertainties tempering the more buoyant expectations. On our valuation screens, many media stocks continue to trade at substantial discounts to their long-term averages, suggesting that prices may have further to recover or that there are downgrades yet to come (or both). The widest discounts are in European cable and satellite, US interactive media and services and European interactive home entertainment.
This second edition of MediaWatch (the inaugural version was published in January 2023) looks at performance and changes to consensus forecasts for companies in the media sector across the UK, European and US markets. We highlight the direction of travel of revenue and EBITDA (as a proxy for earnings) estimate changes across the seven constituent subsectors, as defined by the MSCI’s Global Industry Classification Standard (GICS), for CY23 and CY24. We then look at the individual stock level to see where current valuations are compared to their long-term averages, using values back to 2006 to smooth out the cycle. On the basis of our screens, a large majority of stocks are trading at substantial discounts to their long-term average ratios, which indicates that pricing remains too low or that market earnings estimates are too high, or both.
Household discretionary spending remains constrained by higher housing and utility costs, emphasising the need for media companies to deliver value, which is key to staying part of households’ budgets. Advertising spend expectations are also reflecting this, with brands keen to stay relevant and present. We are seeing this in the media sector numbers, with limited top-line growth expected but slightly better margins, as management teams focus on cost containment in the face of continuing input inflation. Off-shoring and near-shoring trends look set to continue.
The general tenor of management FY23 outlook statements so far has been that year-to-date operating performance has been in line with internal and market expectations (which aligns with our broad observations on consensus estimate revisions), with the rider that visibility is not necessarily good. There should be a clearer view when Q123 statements are published later in April and in May.
There are some particular themes exercising media sector observers at the moment, which represent both opportunities and threats to participants. These include:
Other topics are cooling because people have probably grown tired of talking about them, rather than them losing relevance.
Metals & Mining
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