Goldman Sachs has raised its rating on Daily Mail and General Trust PLC (LON:DMGT) to ‘neutral’ from ‘sell’ following the stock’s 23% underperformance compared to the Stoxx 600 over the past year.
The bank, however, cut its target price to 653p from 678p, to reflect its change to earnings estimates after the newspaper publisher warned earlier this month that full year pre-tax profit would be towards the lower end of market expectations.
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“Overall, our earnings estimates change by +4.6%/-2.4% for fiscal years 2017/18,” Goldman said.
Goldman said the Daily Mail continues to face risks from a decline in print advertising and an increase in cost inflation for raw materials.
In an update for the 11 months to the end of August, the company said print advertising revenue for the Daily Mail and Mail on Sunday newspapers fell 11%. However, the MailOnline website saw advertising grow 22%.
Its Risk Management Solutions business, which targets the global property and casualty reinsurance industry, delivered flat revenue.
Goldman estimates that 11% of group revenues are exposed to UK property transactions, which it expects will see “softer dynamics” as a result of Brexit and a competitive environment.
Revenue from the roll-out of DMGT's RMS(one) platform is not expected to have a material impact on earnings until fiscal year 2019, Goldman added.
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“DMGT trades at 13.7x 2018 price-earnings ratio, a 13% discount to our broader EU media coverage on 15.8x, which we view as justified given the structural challenges and below-average growth outlook,” the bank said.
“Risks to our view and price target include: (1) stronger- or weaker-than-expected print advertising; (2) faster- or slower than-expected growth in RMS or Mail Online; (3) value-enhancing or destructive M&A; and (4) foreign exchange movements.”
Shares edged up 0.38% to 661p in morning trading.