In its weekly assessment of the pan-European media sector for investors, ABN Amro has said that whilst stocks have recovered slightly, this is a result only of a broader improvement in the global markets and that the outlook for the media and advertising sector itself remains more or less unchanged.
The broker says that the advertising outlook continues to worsen and earnings at media companies are still under pressure. With many stocks trading close to, or below, two-year lows, it is easy, says the broker, to see the sector as attractive for investment on a simplistic level. However, somewhat worryingly, analysts believe that this view omits to account for the ‘value destruction’ that has occurred over the last year due to ‘the structural collapse in advertising’.
ABN also says that media industry capital has been badly invested over the last twelve months or so, particularly in new media ventures – many of which have since collapsed or been radically reduced – and also in overpaying for acquisitions.
“Until we sense that the advertising market is at least stabilising we cannot justify detracting from our Reduce stance on the sector. As such, we believe that any outperformance will be short-lived and fickle in nature,” the report reads.
