Brokers Warn Of Tough Six Months, Downgrades Media Sector Shares The media sector is about to face a tough six months, according to the latest forecasting report from ABN AMRO. The broker yesterday cut its stance on the sector to “underweight” and downgraded its recommendation on 22 out of 32 media stocks. The reasoning behind the decisions is partly the problems being faced by dotcoms and partly the deterioration in the US advertising industry.
It is thought that the first half of 2001 will be weak, in particular because of the strength of dotcoms last year. The report points to the media’s strong links with technical and telecommunications stock and says that “Media can’t outperform without an overall TMT rally.” Another knock-on effect will be a slowing of activity in mergers and acquisitions. “It is unlikely that convergence deals will happen due to weak internet share prices and the state of telco balance sheets,” continues the report.
ABN AMRO also points to the sector’s reliance on advertising – estimating that 50% of revenues come from this source. The outlook has deteriorated recently in the US, especially for automotive and dotcom, and ABN’s global forecasts have been cut by 1.3%. The report points out that while Europe is robust for now, some 20% of the media sector’s sales are in the US, and that US companies control 64% of the global ad market.
It is thought that broadcasters will take the main strain of the difficult first half, and as such the report recommends avoiding investment in broadcasters or consumer media stocks. “Ad agencies are safe from an earnings perspective, but may suffer de-rating due to sentiment,” it cautions.
