* 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 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)