Last week, Liberum downgraded its estimates for ITV on concerns that uncertainty on Brexit would hit advertising numbers for the rest of the year.
For the same reason, the broker has today cut its recommendation on DMGT, which owns the Daily Mail and Metro newspapers, to ‘sell’ from ‘hold’ and lowered its target price to 620p from 625p.
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“Our concern is an obvious one: namely that advertising revenues in DMG Media are hit both by advertisers in general deciding to hold off on committing advertising revenues and the ongoing secular weaknesses in the retail sector, which is one of the biggest advertising categories for DMG Media,” Liberum said.
“DMG Media is one third of group profits and print advertising revenues are circa 29% of DMG Media revenues with Mail Online (which is geographically more diversified and which is more protected structurally) making up another 21% of DMG Media revenues.”
Brexit uncertainty to hit property information revenues
Liberum said another factor to consider is the impact the uncertainty will likely have on UK property transaction volumes, which is the main driver of DMGT’s European property information revenues.
The European property information business accounts for about 10% of group revenue and 15% of total profits, Liberum estimates.
“Thus, we would argue that circa 23% of group revenues (print advertising revenues + European property information revenues) are directly at risk from the Brexit uncertainty, with at least part of another 9% of revenues (Mail Online) possibly at risk,” Liberum said.
Euromoney stake sale to boost earnings
Liberum also revised its earnings estimates to reflect DMGT’s decision to sell its 49% stake in financial publisher, Euromoney.
The deal saw DMGT return Euromoney shares and cash to shareholders.
“The Euromoney transaction involved a reduction in the share count and, unlike our previous forecasts, we have assumed that DMGT puts in additional cost savings to offset revenue declines so there is not the sharp drop off in DMG Media margins we had assumed previously,” Liberum said.
“The net result of this is that, perversely, adjusted EBITDA forecasts actually rise despite lower revenues.”
Liberum cut its 2019 forecast for revenue by 3.8% to £1.36bn and raised its expectation for earnings (EBITDA) by 7.8% to £189.6mln.
In late morning trading, shares in DMGT fell 0.3% to 671.1p.