1. UK Media Industry Landscape

The media industry is the collection of several businesses that facilitates information sharing to the mass section of the audience. Some of the broader segments in the media industry include films, television, radio shows, news, music, newspapers, magazines, and books. One of the largest additional segments of this industry is entertainment. Moreover, social media remained the fastest growing sub-sector of the media industry. Some of the most prominent global media players are Time Warner, Sony, Walt Disney, Nintendo, and Viacom.

The distinguishing factor for the UK media industry has been the Government’s heavy spending on advertising. Moreover, the UK digital advertising had surpassed expectations because of the Covid-19 pandemic, as it had witnessed a growth of around 5% in 2020. However, non-digital advertising had witnessed a significant decline during the period. This divergence illustrates how consumers adopt digital platforms for content, commerce, entertainment, and games during the COVID-19 pandemic.

The Covid-19 pandemic had opened several new opportunities for revenue models and new ways to provide services to customers. The industry had witnessed recent key developments as the live music and B2B events have gone virtual, some sports broadcasts became free to air, and many more. In a nutshell, the UK media industry of 2020 is much better positioned to tackle several operational headwinds presented by the Covid-19 pandemic than it was at the beginning of the century.

Key Trends in the Media Sector

Risk Exposures to the Media Sector

• Cybersecurity Risk: With a rise in online sales activity post-Covid-19 pandemic, there is also an increase in e-commerce crimes.
• 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 the Covid-19 scenario can affect the production of new content as well.
• Changing Market Dynamics: 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.
• 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 51.01%; however, the FTSE 100 produced a return of around 17.78%, and FTSE 250 generated a return of about 35.74%

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 global entertainment and media sector is expected to reach USD 2.5 trillion by 2025. Moreover, the UK is expected to remain the fastest-growing market of the industry with a CAGR growth of approximately 5% over the next four years. After witnessing a modest drop in 2020, UK’s entertainment & media sector remained on track to show solid growth of around 9% during 2021. Meanwhile, UK is expected to overtake Germany and become the largest E&M market in Western Europe by 2025. However, theatres, B2B Events, and live music might have to wait before they reached 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 (INF, PSON, RCH)

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. Informa PLC (LON: INF)

(Recommendation: Buy, Potential Upside: 24.69%, Market Capitalization: GBP 7.45 billion)

Informa PLC (LON: INF) is an FTSE 100 Index listed UK based media company. It is engaged in events, exhibitions, scholarly publishing, and information service.

 

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)                   

From a technical standpoint, the stock price is hovering between the lower Bollinger band and the middle 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 24.69% over the closing price of GBX 492.50 (as of 03 August 2021).

B. Pearson PLC (LON: PSON)

(Recommendation: Buy, Potential Upside: 13.98%, Market Capitalization: GBP 6.25 billion)

Pearson Plc (LON: PSON) is operating as a multinational education and publishing Company, catering to the private and public institutions, the governments, and individual learners. The Company is listed on the FTSE 100 index. 

PSON will pay an interim dividend of 6.3 pence per share on 20 September 2021, with an ex-dividend date of 12 August 2021.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. The momentum indicator 14-day RSI (~42.83) is also indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 13.98% over the closing price of GBX 815.40 (as on 03 August 2021).

C. Reach PLC (LON: RCH)

(Recommendation: Expensive, Potential Downside: 14.45%, Market Capitalization: GBP 1.21 billion)

Reach PLC (LON: RCH) is an FTSE All-Share 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.

On 24 September 2021, the company will pay an interim dividend of 2.75p per share.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock price is hovering around the upper Bollinger band, indicating a correction in the stock price. The momentum indicator 14-day RSI (~78.34) is also indicating a correction in the stock price. 

Valuation Methodology

Our illustrative valuation model suggests that the stock has a downside potential of 14.45% over the closing price of GBX 389.00 (as on 03 August 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” recommendation is also valid for the current price as covered in the report as on 04 August 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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