A round of financial results from media companies due this month will define in hard numbers a slowing in the advertising market, according to analysts.
The year to date has been challenging with the SMI numbers showing agency ad spend down 1.4% to $6.93 billion for the 12 months to June, excluding government.
And analysts at investment bank Credit Suisse expect a continuation of that tough underlying business environment for media players to continue in the six months to December.
The TV and radio markets are down, online classiifed advertising sites, such as Doman and REA, are feeling a weak property market, and news publishers face the impact of shrinking agency ad spend.
The metro free-to-air TV market was weak in the second half of the financial year. Credit Suisse analysts estimate a 6.1% decline.
“Industry data and feedback from media buyers suggests that any spend associated with the Federal election over the period was more than offset by a pullback in advertising from key sectors (financial services and auto in particular),” the analysts write.
However, the analysts expect falls for metro TV to be more modest for the 2020 financial, around 1.5%.
For online classifieds, property listings are taking a step down from already low levels, new car sales are failing to show any sign of recovery, and job listings are also down.
“The weakness in property listings has now become a familiar theme,” write the analysts in a note to clients.
Data from CoreLogic data shows new listings for the capital cities were down in the half year to June. Sydney dropped 24% and Melbourne 22%.
“Whilst you could argue that this weakness is temporary, we see no indication of any near term recovery,” says the analysts.
The see Domain as the most likely to be impacted given its greater exposure to the Sydney/Melbourne markets. Credit Suisse has an underperform rating on Domain.
Among traditional media, Credit Suisse prefers Nine.
“It offers earnings growth into FY20 despite a weak ad market and lower property listings,” say the analysts. “We expect that factors largely within NEC (Nine) management’s control (benefit from Stan, 9Now and synergies from FXJ transaction) will more than offset the negative market conditions.”
Among online classifieds, carsales.com.au is a top pick by Credit Suisse.
“We see it as the lowest risk heading into the FY19 results, given that its key metrics have been pre-announced and is most attractively priced relative to peers,” the analysts say.
Forecasts for some of the ASX-listed media companies due to release their results this month:
News Corp
Credit Suisse forecasts a fourth quarter revenue decline of 3% to $US2.613 billion and full year revenue down 1.4% to $US10.22 billion.
“While we forecast improving trends in digital ad revenues at Dow Jones, the result will likely be negatively impacted by lower listings at REA and difficult comps in Book Publishing,” say analysts at Credit Suisse.
Fourth quarter Subscription Video Service revenue is expected to fall 32.5% to $US65 million.
Nine
The merged Nine/Fairfax entity has earnings guidance in the $A420 million to $A430 million range.
Credit Suisse says this would be a “solid outcome” in a challenging underlying environment.
“In our view, the result will reflect the diversification in the NEC portfolio post the FXJ merger, with good performance at Nine Digital and Metro Media likely to offset some of the challenges in FTA TV and at Domain,” the analysts say.
Credit Suisse is forecasting total revenue of $A2.44 billion for the year to June, with most of the growth from digital and metro media. TV will be down 2.5% to $A1.12 billion and Domain 2.9% to $A346.9 million.
Seven West Media
The media company has given guidance for the full year of underlying earnings (EBIT) of $A210 million to $A220 million. Credit Suisse’s estimate is $A212 million.
“We see very limited downside risk from this range, notwithstanding the weak underlying market,” say the analysts.
“We are yet to see any consistent signs of a market recovery in TV, with media buyers suggesting to us that advertisers remain cautious for the time being.”
Credit Suisse expects newspaper revenue to be down more than 8.9% to $A185.9 million, TV 2.3% to $A1.23 billion and magazines 10.4% to $A125 million.
Overall revenue is expected to be down 3.6% to $A1.56 billion.
HT&E (Here, There & Everywhere)
Total revenue is forecast at $A134.1 million, down 2.1%, with a stronger contribution from ARN (Australian Radio Network).
WPP AUNZ
The local arm of the global holding company is due to release its half year results on 23 August, the first since it posted a statutory loss of $17.1 million for 2018 as it took a hit to revenue from its Advertising, Media Investment Management segment.
The company in February pointed to "rapid digital transformation, economic headwinds, market changes" as it moved to restructure the business.
WPP AUNZ, at its AGM in May, gve guidance of flat revenue for 2019.
Shareholders were told: "The first quarter actual trading results are ahead of our internal forecasts, but behind the year prior, primarily as a result of the weak media expenditure and flow through impact of weak media expenditure and the flow through impact of contract losses of last year."
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