Year 2018 has started on a tough note for stock market. The much awaited healthy correction is ongoing. Sensex has lost almost 2000 points from the peak 36,200 odd levels. This correction has brought down many stocks across different sectors. Sectors like FMCG and Retail are still expensive despite this correction. However, there are sectors which were not doing great from last two years and this correction has further pushed them down. Media and Entertainment is one such sector where there is plenty of value for long-term stock pickers. In this article, we will analyse the potential of media sector stocks for two years time frame.
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A Year of Underperformance
Media Index has given a return of 12% in last one year. These returns on prima-facie look decent but if we compare it with average market returns of 19% this looks ordinary. In the same period metal index has returned 30% while realty index has given a stunning return of 70%. Below chart depicts Nifty Media Index performance over last one year.
Inherently most of the media stocks are well run business with decent financial numbers but their revenue in 2017 has been flat or dropping due various headwinds like demonetization, GST rollout, decrease in industrial capex and hence expenditure on marketing etc. We believe, the worst days of media industry are over and over next few years stocks from this sector can perform well, if chosen carefully.
Doubt on the future of printed newspapers in digital age?
Many analyst and leading publication houses have raised doubts if paper based business model of newspaper companies is going to be viable in future. With arrival of cheap broadband speeds and smartphones, users will get migrated to e-paper or other online platforms. However, so far printed newpaper circulation trends have defied this prediction as they continue to grow at healthy rate of 12% yearly in India. Not only India, printed newspapers continue to grow in advanced economies like UK (12%) & USA (7%).
We believe printed newspaper is here to stay because of ease of use. Personally, I still prefer printed newpaper in the morning with a cup of tea. The ease of use surpasses other obstacles. It is available quite cheap, does not need any power or screen to read. There are no annoying pop-up ads like in e-papers. Navigation is controlled by hands not by mouse. Even in rural areas where more than 60% of India lives, it is only printed newpaper which is preferred over any digital platform.
What can drive media stock up in 2018 & 19?
- Reasonable Valuations: Most of the media stocks are trading at close to their 52 week lows and they are have excellent return on equity and very manageable debts. With recent market correction, media stocks have gone down as compared to their intrinsic value and they are perfect opportunity to be lapped up as value picks.
- General Elections 2019: We have entered into the final year of term for Modi government and from here till 2019 general elections, there will be increased expenditure on media advertisements which will benefit leading media stocks. Historically, elections have a positive correlation with media stocks. This trend makes sense as curiosity leads people to watch new-channels and read newspapers.
- Corporate Capex Revival: Corporate forms a substantial chunk of advertisement revenue for media companies. At present, capex for corporate has been languishing at multiyear lows at 5.8% in FY17 which is slowest since 1993. Since companies are avoiding fresh capital expenditure their marketing budget has also shrunk which directly impact media companies. There are high chances of reversal in this cycle in 2018 onwards. Infact capex and fresh loan offtake by industries has been rising since Q3 2017 onwards. This should act as a tailwind for media sector in general.
What Stock to Consider?
There are many media stocks which are on verge of breaking out and once bull run resumes, they should perform on the back of better financial results. The low base of 2017 should also help these companies to post better results with multiple tailwinds in their favor.
You can consider investment in below stocks after proper due diligence. This is just a watch list and not a recommendation to buy. For our buy recommendations, please consider joining our paid services by clicking here.
- Jagran Prakashan
- Hindustan Media Ventures Limited
- DB Corp
- Sandesh Limited
- Zee Entertainment
- TV Today Networks
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