MediaWatch – Still waiting…

The media sector continues to be a bit frustrating. Underlying GDP growth and consumer confidence remain suppressed, with timescales for a rebound pushed out. There is a resultant hesitancy at the corporate level to release budgets for sales and marketing and investment in digital transformation projects. However, subscription services have held up better than expected and price increases seem to be sticking. In the UK, low corporate valuations and a weak currency may be triggering a long-awaited upsurge in corporate activity, both inter-corporate and public-to-private deals. Overall, there have been small moves in the quarter in corporate revenue and EBITDA forecasts (broadly downwards in the UK, with slight uplifts in Europe and North America). This was reflected in European media share prices increasing by 2% and North American share prices by 3%, while share prices in the UK sector were down 3%. The resultant valuations are still a long way below their long-term averages.

MediaWatch looks at the 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) estimate changes across the seven constituent subsectors 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.

Key themes

United Kingdom: Underperforming market and estimate downgrades

• The UK media sector was the only region to underperform its local market as half of the six subsectors delivered below-market returns.
• The underperformance of the media sector was accompanied by downgrades to CY23e sales and EBITDA estimates.
• We have identified 28 companies forecast by consensus to deliver positive free cash flow in CY23e and CY24e that were trading at a discount to their long-term average EV/EBITDA multiple at 30 September 2023.

Continental Europe: Strong market return from movies and entertainment

• The European media sector’s positive return of 2% was impressive, driven by strong returns from the two largest subsectors in the region: movies and entertainment and interactive media & services.
• Broadly, CY23 sales estimates were unchanged in the quarter. However, aggregate EBITDA estimates were downgraded 2% in the quarter.
• We have highlighted 79 companies that were trading with a CY23e EV/EBITDA multiple below their long-term average multiple and are forecast by consensus to generate positive free cash flow in CY23 and CY24 at end-Q323.

North America: Alphabet and Meta lead the way

• The North American media sector outperformed its local market by the largest margin of the three regions, driven by the strong performance of the interactive media & services subsector, as Alphabet’s and Meta Platform’s share prices continued their rally in CY23.
• There was also little change to the expected North American media consensus estimates for CY23 sales. The market was more bullish regarding profit estimates as the sector enjoyed a 4% upgrade to CY23 EBITDA forecasts.
• We highlight 85 companies that are forecast by consensus to deliver positive free cash flow in CY23 and CY24 and that were trading at a discount to their long-term average EV/EBITDA multiple at 30 September 2023.

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