Global advertising trends point to a V-shaped recovery for the industry once the major disruption from coronavirus passes, says Citigroup.
Citi analysts said they were upbeat on WPP PLC (LON:WPP) and the other major agencies given the lower volatility to their earnings and current cheap valuations, and “see value” for broadcasters and producers such as ITV PLC (LON:ITV) and Walt Disney Co (NYSE:DIS).
Tracking commentary from the top 100 global advertisers, media sector analysts at the US bank came to various conclusions, the primary one being that the disruption from COVID-19 was heavy in the short-term but a “V-shaped recovery is in sight”.
The analysts said their positive fundamental view on WPP and ‘buy’ rating was reinforced by positive catalysts expected over the coming three months.
These include scope for a “mildly less severe downturn” than the market fears in the short term, a pick-up in revenue into the back half of the year, scope for good news on potential cost savings in the medium term, and a possible boost to earnings from restarting the share buyback.
All this comes against a “very depressed valuation” both in absolute terms and relative, with WPP shares trading at around 8.0 times 2021 forecast earnings versus US peers on forward p/e ratios of at least 10 times.
Football restart potentially bad for ITV
Some contrast was provided by Deutsche Bank’s economists, who told clients that the global economy is showing “no sign of any ‘V’ shaped recovery in any of our metrics” and that “some rebounds are already showing signs of flattening out at subdued levels”, with many people remaining reluctant to return to work, use public transport or send children back to school, “which will continue to hinder a forceful recovery”.
Despite the encouragement seen elsewhere for advertising trends, the confirmation over the weekend from the English Premier League that top-flight games will resume from June 17 is negative for ITV, analysts at Deutsche Bank said.
This is because the Premier League said all its 92 remaining matches will be played behind closed doors and broadcast live on UK television, with 29 matches available on free-to-air.
Sky Sports will broadcast 64 matches, including 25 available on free-to-air; BT Group PLC’s (LON:BT.A) BT Sport will show 20 live matches; Amazon Prime will show four matches; and the BBC will broadcast four live matches for the first time in the last 32 years.
“The resumption of the EPL in June should be lapped up by fans, following a three-month suspension,” the analysts said.
“This is potentially negative for ITV with some eyeballs shifting to live football, together with a hiatus in production activities which has weakened its summer programming slate.”
The number crunchers noted that ITV has shelved its popular reality show ‘Love Island’ owing to the coronavirus pandemic, and is broadcasting running-shows on a reduced schedule until production activities normalise.