Consumer Dip May Put Squeeze On Johnston Press, Say Analysts

Worries that consumer spending patterns are about to take a dive underlie the broker’s downgrade (see Neil Blackley Sees ‘Dire’ Decline In Media Industry). Johnston Press derives around 26% of its advertising revenues from local employment and property advertising, according to Merrill. Should consumer health degrade, these revenues streams will also wither.

The outlook for consumer spend is described as ‘uncertain, though not yet bleak’ and Merrill’s economists are expecting a pick-up in UK GDP growth this year. However, within the broader economy, private spending is predicted to slow significantly and the housing market is already slowing.

When Johnston Press released its financial results in March (see Johnston Press Remains ‘Acquisitive’ As Profits Rise), Merrill Lynch cut its 2003 advertising growth forecasts for the group from 3% to 2%, due to these broader consumer spend concerns. The 2004 forecast of 4-5% is now also considered optimistic and is being lowered to around 2-3%.

In the year-to-date advertising has remained fairly positive, with property growth at over 10%, motors at 2% and recruitment and retail coming in flat.

Following a strong run for Johnston’s shares relative to the media market, they may now ‘tread water’ a while due to the uncertainties. In the long-term, however, Merrill says its enthusiasm for the company remains ‘undiminished’.