Credit Suisse upgrades European media sector
* Says European media seen cheap, well-placed for upturn
* Defensives, cheap cyclicals favoured
* European DJ Stoxx media sector index up 1.5 percent
LONDON, July 31 (Reuters) - Credit Suisse upgraded Europe's media sector to "overweight" from "underweight", arguing it was well exposed to any corporate spending upturn and had been the worst-performing cyclical sector since the market trough.
The DJ Stoxx European media sector index .SXMP rose 1.3 percent in a flat broader market on Friday, with the bank's top picks Reed Elsevier (REL.L) up 3 percent, WPP (WPP.L) up 1.7 percent, Vivendi (VIV.PA) up 0.9 percent, Pearson up 1.1 percent and Wolters Kluwer (WLSNc.AS) up 1.8 percent.
Credit Suisse said it favoured professional publishers, the most defensive sub-sector with 40 percent of revenues coming from non-discretionary subscriptions to legal and scientific publications, and agencies, the cheapest area of cyclical media.
Britain's Pearson, which makes most of its profits from educational publishing and has cut its dependence on advertising to 3 percent of revenue, said this week it was trading ahead of expectations and raised its full-year forecast. [ID:nLQ16599]
Dutch publisher Wolter Kluwer posted higher first-half revenues and profits, saying demand for its legal, tax and scientific products had remained intact. [ID:nLT434268]
Credit Suisse said media as a whole was the cheapest cyclical sector, on a relative forward price-earnings discount of 15 percent, while its dividend yield relative to the market, at 135 percent, was close to a 15-year high.
The bank said that after software and IT services, media companies were next in line to benefit from improved corporate spending, which it saw as increasingly likely.
Credit Suisse also pointed out that changes in sector composition meant the sector was becoming less cyclical, with professional publishers now having 38 percent share, up from 24 percent in 2005.
Meanwhile, the share of the most cyclical subsectors -- free-to-air broadcasters and consumer publishers -- had fallen to 18 percent from 37 percent, meaning that advertising spending now accounted for less than 30 percent of total sector sales.
European broadcasters Mediaset (MS.MI), Telecinco (TL5.MC) and Antena 3 A3TV.MC all reported double-digit drops in first-half advertising revenues on Thursday. [ID:nLU682950]
Leading media agency ZenithOptimedia predicted earlier this month that the downturn in global advertising was approaching its lowest point and should see a mild recovery in 2010 after a fall of 8.5 percent this year. [ID:nL3620524] (Reporting by Georgina Prodhan; Editing by Greg Mahlich)
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