Our head of markets examines how the big five media firms compare in an adapt-or-die sphere.
The media sector covers a whole host of activities, ranging from publishing, video, programmes and advertising to events and public relation companies.
Globally, the onslaught of the likes of Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), The Walt Disney (NYSE:DIS) and Comcast (which bought UK company Sky in 2018) will continue to have a profound effect on viewing habits, while the personalisation of content will become an increasingly important theme.
The advent of social media has also added to a burgeoning sector so, given the size and complexity of the subject, for the purposes of this piece we will be looking at FTSE 100 companies within the media sector, as defined by the London Stock Exchange.
There are five stocks in this category: Informa (LSE:INF), ITV (LSE:ITV), Pearson (LSE:PSON), RELX (LSE:REL) and WPP (LSE:WPP). The scope of just those five companies is testament to the breadth of activities within the sector.
Informa is an international exhibitions, events, information services and scholarly publishing group, operating across five divisions: connect, intelligence, markets, tech and Taylor & Francis.
ITV is split into three segments: ITV Studios, direct to consumer and broadcast & online; while Pearson provides content, assessment and digital services to schools, colleges and universities, as well as professional and vocational education to learners to help increase their skills and employability prospects.
RELX Group (formerly known as Reed Elsevier) is a global provider of information and analytics for professional and business customers, and operates in the four segments of scientific, technical & medical, risk & business analytics, legal and exhibitions.
WPP also operates through four segments: advertising and media investment management; data investment management; public relations and public affairs; branding and identity, healthcare and specialist communications.
We find ourselves in a rapidly changing environment, usually impacted to some extent by technology and technological advances, and the media sector is no different.
The way we consume entertainment, for example, has long since been via the traditional TV. Mobile phones, laptops and other hand-held devices - and even those still watching TV may be doing so in separate rooms on different channels at home.
This means that the complexity of measuring content for advertising and trend purposes has increased. It also means that companies will need to pay ever greater attention to how the individual's data is protected: whilst useful of itself, a compromise in the user’s security inevitably leads to distress and, in some cases, financial loss.
Indeed, the whole experience is becoming more tailored to (and by) the individual. A recent paper by PWC, entitled Entertainment & Media Outlook 2019-2023 stated that media is being "constructed by individuals for their own enjoyment and gratification, and accessed through personal devices. It's also an increasingly mobile world – soon to be augmented by superfast 5G networks – where empowered UK consumers are moving from passive to active consumption, controlling their own media consumption via an expanding range of smart devices and over-the-top (OTT) streaming video and music services. Total OTT revenues in the UK will rise at a compound annual growth rate of 10.3% between 2018 and 2023, to reach £2 billion."
The emergence of the pay-per-view and/or subscription model is becoming increasingly entrenched in everyday life, and the advent of artificial intelligence may yet play a part in how content is made available and then delivered.
Meanwhile, across all parts of the media sector, digital and online is proving to be a golden goose. Of course, in the early days of adoption, it seemed difficult to see how a simple search engine or video channels such as YouTube, let alone a simple social networking site such as Facebook, would be able to monetise the volume of traffic being directed through those sites. This evolved quickly and is now a major source of income.
Closer to home, and again from the PWC paper, the UK remains the biggest internet advertising market in Europe, growing by 15% in 2018 to reach £13.3 billion. This accounts for 31% of total European revenue. The paper adds: "Over the next five years, we project that internet advertising spend will continue to grow robustly at 9.1%, driving revenue to £20.6 billion in 2023.
Two high-yielding names and one steady-eddy
Informa: The business's diverse business model and solid track record have helped underpin investor confidence, while absorbing rival firm UBM last year marked another positive milestone. Recent outlook comments were upbeat – "the enlarged Informa Group is performing to plan, delivering a further period of growth in revenue, adjusted operating profit, free cash flow and dividends" – while the progressive dividend policy is attractive, although the dividend yield is low at 2.6%. A forward price/earnings ratio of over 15 is above the 10-year average of 13, which is a reason to be cautious, as is a 35%-plus rally in the share price year-to-date, up to market close on 22 August. However, clearly progress is being made, and the company's recent results topped analyst expectations with positive full-year guidance reiterated.
ITV: Strategically, ITV continues to respond to changing viewer habits, while also lessening its reliance on (cyclical and waning) traditional advertising. There has been progress on both, with its share of online viewing via the ITV hub recently having risen. Meanwhile, revenues from ITV Studios have also inched higher as the company provides prime content, with another set of popular programmes having recently hit the screens or in the pipeline. The launch of BritBox (a subscription joint venture with the BBC) should provide some clues as to the potential for this form of viewing in the UK. The dividend yield of 6.7% is an obvious attraction to income-seekers.
WPP: Progress is ongoing in reducing what had become a sprawling empire. A total of 44 disposals were made over the last 15 months (such as the sale of 60% of WPP's stake in Kantar, which will reduce debt to the tune of $1.9 billion (£1.5 billion) and return an additional $1.2 billion to shareholders). Revenues recently improved in the group's key US and UK markets, while net new billings of nearly $3 billion for the latest half-year were proof that the company can still compete with the best. The current dividend yield of 6.3%, which is well-covered, is another attraction.
How the big five media players compare
|Company/index||Share price performance 1 year||Dividend yield (%)||Market consensus||Market capitalisation|
|Informa (LSE:INF)||13%||2.6||Strong buy||£10.9 billion|
|ITV (LSE:ITV)||-33%||7.2||Buy||£4.5 billion|
|Pearson (LSE:PSON)||-10%||2.3||Sell||£6.4 billion|
|RELX (LSE:REL)||14.50%||2.2||Buy||£37.7 billion|
|WPP (LSE:WPP)||-26.50%||6.3||Buy||£12.6 billion|
Source: interactive investor. As at 22 August 2019.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.