Following continued underperformance over the year to date, certain areas within the media sector ar...
Following continued underperformance over the year to date, certain areas within the media sector are starting to offer some value, although volatility remains.
The FTSE media and photography index has fallen 24.49% over the 12 months to the end of April, compared to a return of 4.43% in the FTSE All Share.
David McGillveray, fund manager at Invesco, says the media sector has been hard to play of late but the beating stocks have taken is starting to bring some value to a still volatile market.
He says: "Media companies have been trashed over the past three months, irrespective of what area they are in. There are some very good companies at good valuations because they have been sold off pretty indiscriminately."
Advertising agencies have suffered in light of the concerns surrounding advertising sales growth.
Michael Maughan, media analyst at Gartmore, is neutral on advertising agencies but has concerns about the sector, following the news that WPP's earnings growth this year will be less than half that of US rivals Omnicom.
"We are a bit nervous on the advertising agencies and the newsflow coming out of that area," he says.
McGillveray is similarly concerned about WPP, adding that they probably mistimed a perhaps excessively priced takeover of Young and Rubicon earlier this year.
Simon Atherton, fund manager at Aberdeen Asset Management, is upbeat about the longer term outlook for advertising agencies, however, believing that the potential for growth remains intact.
"Advertising has been bleak, but they are growth companies and as a proportion of GDP, advertising keeps going up," he says.
Advertising remains highly cyclical, however, and advertising budgets are still one of the first expenses to be cut when an economic slowdown leads to reduced corporate expenditure, according to McGillveray.
The tremors shaking the advertising world are naturally hitting the television companies, putting a squeeze on one of their main revenue streams.
Maughan is bearish about television broadcasters, pointing to particular concerns about digital television companies meeting their subscription targets.
McGillveray is also underweight television companies, fearing there is potential for more bad news to emanate from the sector.
"There is an earnings risk in the sector among the television companies, not only in advertising terms but on the digital side, where subscriber growth is unlikely to hit targets," he says.
Where McGillveray does see value in the sector is in specialist publishing companies with intellectual property.
He says: "We are now uniformly overweight publishing businesses. Publishing has been under pressure but the business is a lot more cyclically geared and robust than pure advertising companies."
Pearson is one company he likes, believing they have some unique selling points.
Achievements, charity work and other happy snippets
Laughable excuses for persisting
Spent 56 years at Schroders
Warns on profits