Australian media companies are being marked down, their prospects of gathering advertising revenue reduced, as businesses cut marketing spend on the back of the economic turmoil from the coronavirus.
On the ASX, shares in Nine, News Corp, oOh!media, Sky, Seven and Southern Cross are down an average of 37% in 2020, according to calculations by Morningstar.
"Demand for advertising services provided by these entities hinges on business confidence and consumer sentiment -- two qualities in short supply amid the current contagion fears," says Brian Han, senior equity analyst at Morningstar.
"In such a precarious environment, sheer discretionary nature of marketing spending is laid bare as businesses batten down the hatches."
Macquarie Wealth Management prefers media companies with exposure to digital and streaming revenue, including Nine and News Corp, in an economic storm.
"It is difficult to know the extent to which COVID-19 will impact the economy and markets," write Macquarie analysts in a note to clients.
However, they say Seven West Media and oOh!media’s balance sheets are most vulnerable.
Investment bank UBS has cut ad revenue forecasts for both metro TV and metro radio, both already weak before the current crisis, to 10% negative growth.
Analysts acknowledge the difficulty in predicting how long the coronavirus will drag on the economy but believe there is already enough evidence to cut media forecasts.
“Whilst the length and severity of the current coronavirus situation is uncertain – we believe its impact on consumer / business confidence, corporate spend, and thus advertising budgets is already more negative than what consensus forecasts factor,” write UBS analysts in a note to clients.
“For online media – not yet, but downside risks are growing if the current coronavirus situation worsens.”
The analysts say the share prices of online media stocks are applying a “severe haircut” to forecasts for the rest of this financial year and the first half of the next.
“Macro indicators were already suggesting a continuation of the weak ad market trends,” the analysts say.
Consumer confidence, retail sales, new car sales and airport passenger numbers are all weak at the moment. And retail, auto, and travel advertising together make up 25% to 30% of the TV and radio advertising markets.
“There is then the potential for these indicators to worsen further in coming weeks,” write the analysts.
“Ad spend has shown a strong (albeit lagged) correlation to both consumer and business confidence over time.
“Retail sales generally leads retail ad spend in both the TV and radio ad markets. Auto advertising spend is also closely linked to new car sales activity. “
UBS has adjusted its recommendations in ASX-listed media companies.
“In a weak ad market environment, we prefer names with a strong balance sheet, scope to reduce costs, and with some earnings downside already baked into expectations,” write the analysts.
UBS has Nine and News Corp as buys. Seven West media has been downgraded to neutral from a buy “given heightened refinancing risks”.
UBS has cut its full year to June earnings per share forecasts for Nine by 8%, Seven West media 12%, Southern Cross 7% and HT&E 12.5%.
However, the analysts are assuming a cyclical ad market recovery by the second half of the 2021 financial year.
UBS ratings and share price targets:
Broadcast media forecasts:
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.