MediaWatch – Rinse and repeat

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MediaWatch – Rinse and repeat

This is our fifth edition of MediaWatch, in which we look 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 for revenue and EBITDA (as a proxy for earnings) by looking at estimate changes across the seven constituent subsectors, as defined by the MSCI 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 continue to trade at a substantial discount to their long-term average ratios, which indicates that pricing remains too low or that market earnings estimates are still too high, or both. In this edition, we have included the absolute numbers of upgrades and downgrades in each of the subsectors, information sometimes swamped by movements in the dominating stocks.

Rinse and repeat? The old adage on the back of the shampoo bottle seems currently applicable to the media sector’s performance and outlook. Once again, we are seeing a difficult trading backdrop to the sector, with weak underlying confidence at the consumer and corporate levels. At the time of writing, it looks as if there has been no notable further deterioration in Q423 trading, but nor are there any strong signs that the mood has turned. The market’s naturally inherent optimism indicates that revenue and profits are set to grow in FY24, with an expansion in margin, but that – once more – the benefits will be felt more in the second half. Although elections in the United States and probably in the UK in H2 may influence underlying confidence, they will doubtless also draw attention to the use and importance of media.

KEY THEMES

UK: Weaker performance then US, Europe but outperformed local market

  • Revenue estimates were broadly unchanged in the quarter, while profits received a 1% downgrade in Q423.
  • Consensus estimates indicate a 6% sales decline, returning to growth of 4% in CY24. On EBITDA, consensus is for a modest 1% growth in CY23, accelerating to 8% in CY24.
  • We identify 32 companies forecast to generate positive free cash flow in CY24 that were trading at a discount to their long-term average EV/EBITDA multiple at 31 December 2023.

Continental Europe: Strong showing from advertising

  • Then media sector performed broadly in line with the wider market, with three subsectors outperforming and just one generating a negative return. The advertising subsector saw a particularly strong quarterly rally of 17%.
  • CY23 revenue and profit estimates were broadly unchanged in Q423.  Consensus is forecasting sales growth of 8% in CY23 and 5% in CY24. EBITDA is expected to grow at a slower rate of 4% in CY23, before accelerating to 9% in CY24.
  • We highlight 80 companies trading with a CY24e EV/EBTIDA multiple below their long-term average at end Q423. These companies were also expected to generate positive free cash flow in CY24e.

North America: Netflix positivity

  • Sector performance of +9% in Q423 represented underperformance of the wider market, up by 11%.
  • CY23 revenue estimates were unchanged in the quarter, with a 1% upgrade to profits, driven by the interactive media & services subsector. For the year, consensus implies salesy growth of 6%, with 8% in CY24e. Consensus EBITDA forecast growth is more aggressive; up 18% in CY23e, slowing to 13% in CY24e.
  • We highlight 82 companies forecast to deliver positive free cash flow in CY24e and that were trading at a discount to their long-term average EV/EBITDA multiple at 31 December 2023.

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