1. UK Media Industry Landscape

The Media industry plays an important role in shaping the UK economy. There are various sorts of mass media in the media industry like television, radio, newspapers, magazines, and the internet. The United Kingdom is well-known for its thriving music business and its up-and-coming musicians. There is also a sizable television and cinema sector in the country. Also, the British Broadcasting Corporation, a publicly owned public service broadcaster, is the most notable of the United Kingdom's providers.

The distinguishing factor for the UK media industry has been the Government’s heavy spending on advertising. The UK’s entertainment and media industry remained on track to become the largest in western Europe by 2025. Moreover, it had demonstrated a rapid rebound in the aftermath of the pandemic. However, non-digital advertising had witnessed a significant decline during the period. The sector witnessed total revenue dropping around 5% in 2020 because of the adverse impact of lockdowns on cinema, live music, events, and advertising. Moreover, total UK cinema revenue would take a while to return to pre-pandemic levels.

Key Trends in the Media Sector

Risk Exposures to the Media Sector

• Federal Reserve Meeting: The Federal Open Market Committee meeting lined up this week may create pressure on global Equities.
• Sluggish UK Macroeconomic Indicators: The UK Composite PMI fell marginally to 53.4 in January 2022 from 53.6 in December 2021, while the UK consumer price inflation breached a nearly 30-year high of 5.4% in the 12 months to December 2021.
• High Cost of Subscription: The hefty cost of subscription can hamper the growth trajectory, while piracy is already hindering the market growth.

SWOT Analysis

 

Benchmark Index Performance

Based on the last one-year performance, the FTSE All-Share Media index has outperformed the FTSE 100 and FTSE 250. The FTSE All-Share Media index generated a return of about 23.99%; however, the FTSE 100 produced a return of around 11.04%, and FTSE 250 generated a return of about 6.37%

Figure 1: One Year Benchmark Index Performance

(Source: Refinitiv; Analysis done by Kalkine Group)

Media Sector Outlook

The UK performance narrowly outpaces the expected growth in E&M revenues at a global level. Meanwhile, the use of digital advertising in the UK got benefited from the nation’s high level of digital maturity, use of online/social platforms and e-commerce activity. The over-the-top segment thrived during 2021 and captured the audience of cinema and traditional TV. Moreover, the subscription video-on-demand (SVOD) revenue was expected to cross the box office in 2021 and would be estimated to surge at a rapid rate in the next four years. Nonetheless, the rapid migration of UK consumers to digital behaviours amid the Covid-19 pandemic would help to sustain overall growth across E&M for the coming five years.

2. Investment analysis and stocks under discussion (PSON, RCH, and INF)

After gaining insights into the Media sector, we would look at the business model of three media players listed on the London Stock Exchange. 

A. Pearson PLC (LON: PSON)

(Recommendation: Buy, Potential Upside: 15.05%, Market Capitalization: GBP 4.68 billion)

Pearson PLC (LON: PSON) is an FTSE 100 Index listed publishing and education company that engages in education, business information, and consumer publishing markets.

The Company will announce full-year results on 25 February 2022, with the strategic update and 2022 guidance.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group) 

From a technical standpoint, the MACD line is giving a bullish crossover against the signal line, indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 15.05% over the closing price of GBX 619.00 (as of 25 January 2022).

B. Reach PLC (LON: RCH)

(Recommendation: Speculative Buy, Potential Upside: 14.83%, Market Capitalization: GBP 747.22 million)

Reach PLC (LON: RCH) is an FTSE 250 Index listed commercial, national, and regional news publisher in the UK. The company's joint venture includes the Pools, Pub in the Park and The Handmade Festival.

RCH will publish the preliminary results for 12 months to 26 December 2021, on 01 March 2022.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the 14-days RSI of ~43.00 indicates an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 14.83% over the closing price of GBX 253.50 (as on 25 January 2022).

C. Informa PLC (LON: INF)

(Recommendation: Watch, Potential Downside: 32.84%, Market Capitalization: GBP 8.07 billion)

Informa PLC (LON: INF) is a consumer discretionary FTSE 100 Index listed company. It is a global provider of business-to-business exhibitions, events, education, and information services. Five divisions make up the company: Informa Connect, Informa Intelligence, Informa Markets, Informa Tech, and Taylor & Francis.

 One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, MACD line is giving a bearish crossover against the signal line and suggesting a correction in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has a downside potential of 32.84% over the closing price of GBX 537.20 (as on 25 January 2022).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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