Wednesday, May 27, 2009

Goldmans Signals Media Recovery

They think its all over. But it isn't yet. Goldman Sachs has increased its share price target for a handful of busiiness media companies including Informa and Reed Elsevier. Does this mean as Press Gazette has speculated that we have turned the corner in this media recession? Erm no. The truth is that the share price damage done to the best of the business media companies has been overdone, and if you wanted a safe safe place to put your money, Reed Elsevier wouldn't be a bad bet (when compared to other media companies.)

But lets get real about what is going on here. The peak of the last cycle was around 2006. In that year Reeds share price peaked at 779. Today it is about 530. Pearson peaked at around 800 compared with 666 today. Informa was at about 500 in 2006 and today is at about 250. UBM (not mentioned in the Goldmans note) had a peak of around 750 in 2006 and trades at 415 today. What this tells us is that even these relatively blue chip stocks must improve by around 50% to recover their value. How likely is that in the forseeable future?

Take a look at the P/e ratios for the business media group. Reed already trades at 23, nearly twice the price of any of its peer group. No upside their without strong growth. UBM, Tarsus and Informa are all between 15 and 17 reflecting their common issues as event organisers (Informa would be stronger were it not for its debt mountain). Centaur, Huveaux and ITE are all in the range 6-10; not bargains I am afraid, but rather a reflection of their even weaker prospects for revenue growth any time soon.

Cost cutting will ensure a stabilisation of profits. Revenue decline may slow or stop, but investors expecting a return to average revenue growth rates are goingto be disappointed in the short to medium term

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