Berenberg cautious on broadcasters as media investor attitudes shift

12th Jan 2015 11:04

After a surprising decline in print advertising during 2014 and the inexorable increases of online video, broker Berenberg views the media sector as expensive, with the best potential for structural growth in online, gaming and outdoor."2015 looks set to be a year in which investor attitudes towards media shift yet again," wrote analyst Robert Berg. "We think evidence of further structural change in the sector is mounting, as the decline of print advertising (what's left of it) accelerates, and TV finally meets its nemesis in online video."He sees the print decline as witnessed at Trinity Mirror and Dail Mail & General Trust (DMGT) in the UK as partly down to programmatic ad-buying techniques online that make it easier and cheaper to buy targeted advertising, with falling print circulation putting old media under even further pressure.In the US there was evidence that online advertising also threatens TV, as Fox, CBS, Discovery, Viacom and NBC results all disappointed with their domestic TV advertising-funded businesses, implying this new pressure point will accelerate the shift to digital.Berg argued that the pressure long felt by print media will extend to broadcasters."Print-reliant businesses have long felt this pain, and have had to spend more aggressively on both restructuring and diversification. The same will be true, we think, for the broadcasters, which have been largely in denial about this threat to their core business."Ahead of the downgrades will come the de-rating, in our view, as investors see the pressures ahead."The analyst acknowledges that the media sector is "very expensive" and suggests reduce sector exposure on this basis."With so many companies in the European sector facing challenges from structural changes to their business model, as well as new global competitors who are significantly better funded, we think the current 25% premium to Stoxx Europe - the highest level in the last eight years - is not warranted."As far as individual shares, Berenberg added ITV to a growing list of 'sell' recommendations that includes Sky, WPP, Mediaset España, and Atresmedia, while suggesting investors 'buy' defensive media companies with solid cash flow generation and certain picks within online, gaming and outdoor: Xing, Ubisoft, JCDecaux, Publicis, Mediaset, SES and EI Towers.