1. UK Media Industry Landscape

The Media industry plays an important role in shaping the UK economy. Some of the broader segments in the media industry include movies, TV shows, radio shows, news, music, newspapers, magazines, and books. One of the largest additional segments of this industry is entertainment. The most prominent players in the industry include Time Warner, Sony, Walt Disney, Nintendo, and Viacom. Other segments include professional, educational, and training media, along with business-to-business communications.

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

• Decline in Non-Digital Advertising Revenue: The non-digital advertising revenue witnessed a double-digit decline during 2020.
• 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.
• 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 33.91%; however, the FTSE 100 produced a return of around 14.10%, and FTSE 250 generated a return of about 20.05%

Figure 1: One Year Benchmark Index Performance

(Source: Refinitiv; Analysis done by Kalkine Group)

Media Sector Outlook

According to the recent report from the industry expert, the Entertainment & Media industry revenues in the UK would grow at around 5.4% to reach £87.6 billion by 2025. Moreover, the global revenue is projected to grow at a modest CAGR of around 4.6% between 2021 and 2025. Thus, 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. However, theatres, B2B Events, and live music might have to wait before they reach normality. 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 (RCH, SFOR, TRMR)

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. Reach PLC (LON: RCH)

(Recommendation: Buy, Potential Upside: 19.54%, Market Capitalization: GBP 1.03 billion)

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.

The company had paid an interim dividend of 2.75 pence per share on 24 September 2021, while the ex-dividend date was 12 August 2021

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)                       

From a technical standpoint, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 19.54% over the closing price of GBX 313.00 (as of 16 November 2021).

B. S4 Capital PLC (LON: SFOR)

(Recommendation: Speculative Buy, Potential Upside: 17.12%, Market Capitalization: GBP 3.77 billion)

S4 Capital PLC is an LSE-listed digital advertising and marketing services company that operates through four segments.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the 14-days RSI of ~31.39 indicates an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 17.12% over the closing price of GBX 642.00 (as on 16 November 2021).

C. Tremor International Ltd (LON: TRMR)

(Recommendation: Speculative Buy, Potential Upside: 16.35%, Market Capitalization: GBP 981.51 million)

Tremor International Ltd. is an FTSE AIM 100 index listed company focused on digital advertising, including video, mobile, native, display technology, and connected TV.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the momentum indicator 14-day RSI (~41.17) is inching towards the oversold territory and suggesting an upside momentum in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 16.35% over the closing price of GBX 634.00 (as on 16 November 2021). 

*All forecasted data and peer information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*The "Buy/Speculative Buy” recommendation is also valid for the current price as covered in the report as on 17 November 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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