Commercial TV broadcasters in Europe will suffer further falls in advertising revenues, says a bank’s major report. The second-half of this year could see further falls in income as the economic downturn starts to bite.
“The macro indicators have taken a significant step down across Europe
in Q208,” says a report from Morgan Stanley. “With inflation rising
beyond expectations, GDP slowing down further and private consumption
experiencing a sharp deceleration, major advertisers such as Procter
& Gamble, Coca-Cola, Nissan, Vodafone (among others) have expressed
their intentions to keep rationalising marketing spend in the near
term. TV adspend shrinkage is therefore not over and could potentially
take another step down in H208.”
The next few days will see a cluster of first-half year results
unveiled from some of the most important names in European
broadcasting, including France’s M6 (July 24), Spain’s Antena 3 (July
31), Telecinco (July 31), Italy’s Mediaset (July 31), France’s giant
TF1 (July 31) and Pro7-Sat 1 on August 6.
Bankers Morgan Stanley, in a 22-page report, examines each of these
broadcasters in detail and says M6 is still gaining market share. “An
improving trend since mid-February, with the launch of two successful
programs (‘Un Diner Presque Parfait’ and ‘100% Mag’) and the positive
effects on ratings of the Euro Cup have allowed M6 to be the only
European Broadcaster we cover to show improving ratings in Q2 vs. Q1
(+8.3%). On the other hand, TF1’s ratings are still declining, down
-1.9% Q2 vs. Q1, -9.8% YoY in June and -1.6% year-to-date in June.
Therefore, while YoY audience share erosion persists for both the
French broadcasters, M6 continues to resist better in a down market,”
says the bank.
“Despite the Euro Cup and a reasonably easy comp (Net Advertising
Revenue-NAR) down -0.1% in Q207 at M6, -5% at TF1), we believe TF1 and
M6 have experienced negative NAR growth in Q2, particularly as May was
notably challenged. Like for Mediaset, we believe Q4 will be the
determinant while Q3 should provide the market with a lot more details
on the French Audiovisual Reform to be debated during the autumn. We
remain Equal Weight on both stocks and keep M6 as our favourite
broadcaster. If regulation news is positive and the advertising market
stabilizes, we believe there could be some significant upside from the
current share prices (our Bull case implies 92% upside potential for M6
– 118% for TF1).”
As to Germany’s Prosieben, Morgan Stanley suggests that there are many
uncertainties ahead for the broadcaster. “We think value resides in
Prosieben but high uncertainty and a lack of clear leadership prevent
us from being more positive. The imperatives created by a complex
financial structure with high leverage are risky for public investors.
Three elements in particular present a risk: 1) covenants, 2) dividend
and the possibility of a dividend cut, and 3) uncertainty regarding
management changes. Until cash requirements are quantified and/or
diminished, and private equity’s intentions are clarified, we think
downside risks (dividend cut, underinvestment in core business etc.)
are likely to prevail on Prosieben’s virtues.”
The bank says Mediaset’s results are likely to be in line with
expectations, and now the challenge is all about its fourth Quarter.
“Mediaset will report H108 results on July 31. We believe there should
be no big surprises, which implies that Q4 will be the determinant as
Q308 still benefits from an easy comp (-2.4% in Q307, +0.7% in Q306)
and is a small quarter anyway (17% of group NAR in 2007). We forecast
+2.4% NAR growth for H108 and retain our full year NAR growth forecast
of +1.6%. However, we believe the lukewarm economy, rising inflation
and advertising budget cuts are affecting Mediaset’s Free TV operations
in the short term, while direct competition with Sky Italia remains a
long-term threat to Mediaset’s pay TV strategy.”
Moving to Spain, the bank notes a “drastic adspend reduction in Q2,”
saying: “After a fairly decent month of April when audiences stabilised
and adspend picked up slightly following a very negative Easter effect
in March, May and June have been very weak, down about 15% according to
TL5. The macro slowdown took a huge step down in May and progressed
further in June, where it was coupled with a very negative Euro Cup
effect. The Spanish Government cut its GDP forecast again in June while
our economists have cut their three year macro forecasts (GDP and
consumption) for the third time this year. Therefore, we expect Q2 NAR
to be significantly negative for both TL5 (we forecast -3.9% for Q208
and -2.6% for H108) and A3 (we forecast -11.2% for Q208 and -10.5% for
H108). In the light of the much steeper than originally forecast
adspend shrinkage that occurred in Q208, we cut our EPS forecasts by
3.7% in 08e, 5.5% in 09e and 3.7% in 2010e for TL5, and by 5.7% in 08e,
7.1% in 09e and 8.4% in 2010e for A3. We still expect TL5 to perform
much better than A3 in the short term, but remain Underweight on both
stocks as momentum is clearly poor and advertising shrinkage may
progress further in H208.”
