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Media stocks: not dead yet

30 Jul 2021 1 month(s) ago

Legacy media is still struggling to survive but the short terms signs are positive, according to one report

The legacy media has been doing a pretty good impression of an ailing patient for the last decade. With Google and Facebook taking 60% of the world’s ad revenue that is hardly a surprise.

But there have been some positive changes. Enthusiastically promoting fear porn and government propaganda – sorry “messages” – over Covid has given the industry a bit of a shot in the arm over the last year, especially with all those government ads filling the coffers. A scared population meant greatly increased eyeballs and online traffic and ad revenue was bolstered by government spending. With the economy bouncing back reasonably strongly the prospects look alright.

UBS has put out a mildly positive report on the Australian media sector as it heads into the results season. “In traditional media, we do not expect any major surprises in the results themselves, though see some potential upside to the estimated calendar year 2022 outlook if the current strong macro environment holds. In online classifieds, we believe Seek could report earnings ahead of guidance (UBSe: $492m EBITDA, guidance $480m) as we believe conditions have strengthened even further since Seek’s upgrade in early May, and also see upside risk to our second half of 2021 estimates for Domain Holdings and REA Group, though the near-term outlook in 2021-22 is less certain given the COVID-19 related lockdowns throughout Australia.”

With the dominant media stocks, UBS is upgrading its recommendation for News Corp and Nine Entertainment from Neutral to Buy. “We see traditional media names as relatively conservatively priced, with leverage to current strong macro conditions and likely to benefit in an inflationary scenario. COVID-19’s impact in the previous corresponding period will drive material year on year ad revenue growth for traditional media names in the June half (Metro TV ad market: c.+25%, Metro Radio +20%).

“On the 2021-22 outlook, we see potential for upside if strong macro conditions hold, though we see some uncertainty on the outlook in radio, with ad spend still 17% below pre-COVID levels in the June quarter. Other themes include the impact of recent deals with Facebook/Google; cost control (with selected investment in growth areas); and with balance sheets broadly repaired, we see dividends returning or increasing in 2021-22 and the potential for corporate activity.”

UBS expects all online classifieds names to benefit from the current strong macro environment in the second half of 2021.

IBS has a price target of $39.50 for News Corp and $3.10 for Nine Entertainment, which has a buy recommendation “following recent share price weakness.” Seven West Media has the highest projected total shareholder return (33%), followed by Southern Cross Media (28%). 


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