1. UK Media Sector Landscape

The media market in the UK has constantly been rising since 2013, and it is expected to reach GBP 80.5 billion in market size by 2023. The UK data consumption is expected to be doubled of 2019 level by 2024. However, the pandemic had a negative impact on the media industry in the UK as magazines, events, and cinemas remained closed. On the flip side, over-the-top (OTT) video services, internet services, blogs, and podcasts got a boost as people consumed in-home content. Therefore, it has unlocked a new way to reach the audience, and the UK media industry is in a better position to tackle such disruptive events in the future. In future, there would be lesser reliance on print media, subscription-based, and ad-funded models are likely to be mainstream. The media sector shall rebound strongly once the economy completely reopens.

Key Trends in the Media Sector

• Digital video Retail – Clearly, video retail had significantly increased and became a major part of overall consumer spending. However, the market has been taken over by digital video now. The trend is majorly supported by digital advancements in recent years.
• Over-the-top Videos – OTT videos have captured the market amid pandemic, while the subscription video-on-demand (SVOD) is the fastest growing sub-sector, including the content offered by Amazon Prime and Netflix.
• Changing Demographics – The emergence of millennials has created a demand for technology services, while urbanization will continue to increase the demand for new media services due to busy work-life schedules.
• Advertising Propaganda – As internet users are leveraging ad-block software, marketers are engaging consumers through storytelling and using PR tactics in a disguised way.
• Security and Trust – As consumers are aware of private information leakages, they are opting for services that are more transparent.

Risk Exposures to the Media Sector

• High Cost of Subscription – The hefty cost of subscription can hamper the growth trajectory, while the piracy is already hindering the market growth.
• Covid-19 Pandemic – The social distancing and travel restrictions imposed by the pandemic has led to the cancellation of many events, seminars, exhibitions, product launches and trade shows. It has significantly impacted the media market. The paused filming amid Covid-19 scenario can affect the production of new content as well.
• Changing Culture and Market Conditions – If the industry fails to attract, develop, and retain key creative commercial and management talent, it could lose business. In the long-term, it needs to enhance the skills of its people and also needs to constantly innovate.

SWOT Analysis

Benchmark Index Performance

Based on the last six months performance, the FTSE All-Share Media index has outperformed the FTSE 100 and FTSE All-Share index but underperformed the FTSE 250 index. The FTSE All-Share Media index generated a return of about 14.86%; however, the FTSE 100 generated a return of around 12.21% and FTSE All-Share produced a return of around 14.22%.

Figure 1: Six Months Benchmark Index Performance

(Source: Refinitiv, chart created by Kalkine Group)

Media Sector Outlook

The market size for the UK Digital Media sector is forecasted to reach US$14,052 million in 2021, which shall be supported by growing connection speeds and mobile internet access. The expert says that the UK entertainment and media market will become one of the largest markets in Europe and will be worth nearly £76 billion by 2021. It is also predicted that the market will grow by £8 billion over the next four years, and it will become the second-largest market in the EMEA region, after Germany. Britain has already become the largest video game market and expected to reach £27 million by 2022. The increasing consumer spending on internet access will drive the market forward as the data consumption is anticipated to grow by 22% year-on-year until 2022. Meanwhile, digital streaming revenue will double by 2022 in the UK. The market is entering an era of increasing personalized content which shall boost the value of personal data, while artificial intelligence and virtual reality are rising trends.

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

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

A. Informa PLC (LON: INF)

(Recommendation: Buy, Potential Upside: 20.44%, Market Capitalization: GBP 8.28 billion)

Informa PLC (LON: INF) is an FTSE-100 listed Media Company. The Company is engaged in events, exhibitions, scholarly publishing, and information services. The Company has two broader business segments - Subscription-Led Business and Events-Led Business.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 20.44% over the closing price of GBX 551.40 (as on 02 March 2021).

B. 4imprint PLC (LON: FOUR)

(Recommendation: Speculative Buy, Potential Upside: 19.19%, Market Capitalization: GBP 669.75 million)

4imprint Group PLC (LON: FOUR) is an FTSE-250 listed Media Company, which is engaged in the business of promoting products using direct marketing techniques in the region of Ireland, UK, and North America.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 19.19% over the closing price of GBX 2,390.00 (as on 02 March 2021).

C. European Institutional Investor PLC (LON: ERM)

(Recommendation: Hold, Potential Upside: 11.37%, Market Capitalization: GBP 1.06 billion)

Euromoney Institutional Investor PLC (LON: ERM) is an FTSE 250 listed Company, which is the global B2B information services provider of price discovery, essential market intelligence and events.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 11.37% over the closing price of GBX 966.00 (as on 02 March 2021).

D. Reach PLC (LON: RCH)

(Recommendation: Expensive, Potential Downside: 12.05%, Market Capitalization: GBP 633.50 million)

Reach PLC (LON: RCH) is an FTSE All-Share listed Company. RCH is the United Kingdom-headquartered commercial national and regional news publisher, and its joint venture includes the Pools, Pub in the Park, and The Handmade Festival.

Valuation Methodology

Our illustrative valuation model suggests that the stock has the downside potential of 12.05% over the closing price of GBX 203.00 (as on 02 March 2021).

*All forecasted data and peer information have been taken from Refinitiv, Thomson Reuters.

*The "Buy” and “Speculative Buy” recommendation is also valid for the current price as covered in the report as on 03 March 2021.

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