ITV PLC (LON:ITV) and Auto Trader Group plc (LON:AUTO) were both upgraded to ‘buy’ by UBS as analysts recommended three different stock-picking strategies for the media sector.
Having spoken to companies, investors and the Swiss bank’s own strategists and economists, the media analysts have constructed earnings scenarios depending on the length of the lockdown periods around Europe.
READ: ITV scraps bonuses and cuts director pay 20% amid coronavirus lockdown
With UBS economists having cut global GDP forecasts materially, earnings per share forecasts for the sector have been taken down circa 35% for 2020 and 16% in 2021, with our price targets cut on average by 15%.
“All” media companies, with the exception of France's Vivendi, are expected to post EPS declines in 2020 before rebounding strongly in 2021, the analysts said, with advertising related companies such as broadcasters, agencies, out-of-home specialists “are likely to be the most impacted” based on previous cycles.
“We believe most media company’s business models will survive the coronavirus crisis and balance sheets will not be materially stretched beyond available liquidity or existing covenants,” the analysts said in the note to clients on Thursday.
Three potential stock-picking strategies for the media sector were suggested that “could succeed” on a 12-month view, including backing “structural winners that have de-rated” such as online motor marketplace Auto Trader, Vivendi and Germany’s Scout24.
Auto Trader, which was lifted from a previous ‘neutral’ rating and its price target cut to 510p from 560p, was trading 4% higher on 418.5p by late morning on Thursday.
READ: Auto Trader launches placing to provide support during coronavirus crisis
The second stock-picking strategy is to “back cyclicals with structural growth and manageable balance sheets”, including events group Informa PLC (LON:INF), which is another ‘buy’.
A “more risky strategy” would be to back “structurally challenged stocks trading at trough multiples”, which the recommendations including London-listed ITV and WPP PLC (LON:WPP), which remains a ‘buy’-rated stock.
ITV was lifted from a previous 'neutral' rating, with a share price target cut to 100p from 130p. The shares, which have fallen 56% so far this year, were little moved at 67p on Thursday.
Shares in Informa, which put out a trading statement on Thursday, were up 2% to 424.9p, but are still down 51% in the year to date.
WPP shares were up 1% to 539.2p, still down 50% in the year to date.