JPM European Media Internet 2019 Outlook_watermark

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Daniel Kerven	Europe Equity Research
(44-20) 7134-3057	10 December 2018
daniel [e-mail]

Appendix - Introducing MediaScreen

MediaScreen is a quant based overlay to our fundamental analysis. It tailors the JP Morgan Cycle Investing Framework to the media sector and provides an additional point of reference for our stock selection process.

Investment styles across the economic cycle

Our quantitative research team has identified a relationship between investment styles and the phase of the Economic Cycle, as defined by the level and direction of JPM’s “Quant Macro Index”.

Stage of the economic cycle is defined by the Quant Macro Index

The QMI is based upon 6 inputs: German business confidence; changes in European bond yields, ECB money supply; the OECD’s leading indicator; earnings revisions; and the SEK/USD exchange rate.

There are 4 phases to the cycle determined by both the level and second derivative of the QMI: “Recovery” – the QMI is below average but rising; “Expansion” – above average and rising; “Slowdown” – above average but declining; and “Contraction” – below average and declining.

Figure 33: JPM Quant ‘Cycle Investing’ – Linking the economic cycle with Style returns

Source: J P. Morgan Quantitative and Derivatives Strategies

Using the QMI to time and rotate investment style

Our quantitative team suggests that excess average returns can be achieved across the cycle following strategies that favour the following attributes:

Recovery: good Value, high Risk, low Quality, falling Momentum and smaller Size

Expansion: good Value, high Growth, rising Momentum, low Quality, high Risk and smaller Size

Slowdown: high Growth, rising Momentum, high Quality, low Risk and larger Size

Contraction: good Value, high Quality, low Risk, larger Size and rising Momentum

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Daniel Kerven	Europe Equity Research
(44-20) 7134-3057	10 December 2018
[e-mail]

Figure 34: Returns for Investment Style Rotation using the European QMI

Source: J P. Morgan Quantitative and Derivatives Strategies.

MediaScreen leverages the Cycle Investing framework

We rank the stocks under our coverage in the media sector across a number of investment screens: Price and Earnings Momentum; Risk; Quality; Valuation; Growth; FX movements; Size; Strategic optionality and Macro risk.

The individual screen ranks are based on a range of underlying metrics that are relevant to the media sector and are based on JPM forecasts, consensus estimates or Bloomberg data (see the appendix for details regarding the underlying metrics / factors).

We then apply weightings to the investment screens depending on the phase of the economic cycle, with the weightings informed by the Cycle Investing framework.

MediaScreen is only one input into stock selection process

While we believe MediaScreen will be a useful tool for stock selection, rotation and timing, it is only one input and MediaScreen ranks may differ from our stock recommendations and price targets which also reflect our fundamental views, potential catalysts and are based on a 12m time horizon.

MediaScreen methodology & factor weightings

Investors will have their own views regarding screen weights, economic cycle

Further detail regarding individual screen factors, metrics are discussed below. While informed by the Cycle Investment framework, which in turn is supported by actual performance and back-testing, MediaScreen weightings, and the weightings applied to the factors that underpin the individual screen ranks, are subjective and can be refined over time based on our experience as to what is relevant to the performance of the media sector. Investors will likely have different views on the relevant factors, weightings and where we are in the economic cycle.

Price Momentum

Factor inputs include stock performance over 1 month and 12 months and the 30-day RSI. Stocks rank highly if they have outperformed over 12mos, underperformed over the past month and have a low RSI.

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Daniel Kerven	Europe Equity Research
(44-20) 7134-3057	10 December 2018
daniel [e-mail]

Earnings Momentum

Stocks are ranked on the basis of the 1-month and 3-month change in Bloomberg consensus earnings, the number of net Bloomberg consensus upgrades and downgrades to FY1 and FY2 earnings over the past 4 weeks and the difference between JP Morgan EPS and EBITA forecasts and consensus.

Market Capitalisation

Stocks are ranked on the basis of their free-float market capitalization in euros. In the slowdown and contraction phase, larger-cap stocks rank highest, and vice versa in the recovery and expansion phases.

Risk

Stocks are ranked on the basis of Net Debt / EBITDA, Net debt / Market Cap and Bloomberg betas relative to the wider European market (in USD). Lower-risk stocks have stronger balance sheets and lower betas.

Macro Risk

Stocks are ranked based on their sensitivity to the macro environment based on their revenue mix and operational gearing. We assume stocks with advertising and B2B revenues are more sensitive to the macro environment than companies with subscription-based revenues. Operational gearing depends on the incremental margin and base PBT margin.

Value

We always include a weighting for value, even if that weighting is smaller during the slowdown phase – effectively it is the price being paid for the other qualities / screen rankings. Value ranks are based on a range of metrics: PE, P/FCF, EV/EBITDA, Dividend yield, PE vs 5 yr average and EV / NOPAT.

Quality

We have defined quality on the basis of balance sheet strength, earnings dispersion, the volatility of earnings estimates over time, the variability of earnings growth, geographic diversification, and subscription vs advertising-based revenues.

Growth

Ranks are based on shortand longer-term revenue, EBITDA, EPS and FCF growth.

FX

Stocks are ranked on the basis of the earnings impact of FX movements over the prior month. The weighting of the FX screen depends on the scale of FX movements with a minimum weighting of 0% and a maximum of 7.5%. Given the weighting of FX will change depending on FX moves, all of the other screens will re-balance on a proportionate basis.

Strategic value

Stocks are ranked on our view of their potential to benefit from portfolio change, cash returns, convergence and consolidation opportunities. Stocks are ranked on the basis of financial flexibility vs an industry target leverage and ranked on the basis of the scope for industry consolidation.

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Daniel Kerven (44-20) 7134-3057

daniel [e-mail]

Neutral

Company Data

Price (€)	4.78
Date Of Price	07 Dec 18
Price Target (€)	5.50
Price Target End Date	30-Sep-19
52-week Range (€)	9.37-4.31
Market Cap (€ bn)	1.08
Shares O/S (mn)	225

Atresmedia DCF

Wacc (%)	9.8%
Terminal growth rate	0.0%
NPV
Present Value of FCF (18-30)	1,104
Present Value of Terminal Value	444
Enterprise Value	1,548
(Net Debt)/Net Cash	-307
Equity Value	1,241
Outstanding Shares (bl)	225
Per share	5.5

Source: J.P. Morgan estimates.

Europe Equity Research

10 December 2018

Atresmedia

Atresmedia Corp de Medios de Comunicaion S.A. (A3M.MC;A3M SM)

FYE Dec	2017A	2018E	2018E	2019E	2019E
		(Prev)	(Curr)	(Prev)	(Curr)
Adj. EPS FY (€)	0.63	0.64	0.61	0.70	0.62
Revenue FY (€ mn)	1,052	1,064	1,046	1,090	1,045
EBITDA FY (€ mn)	202	201	190	217	193
EBITDA Margin FY	19.2%	18.9%	18.2%	19.9%	18.5%
Net Profit FY (€ mn)	142	145	137	158	139
Bloomberg EPS FY (€)	0.64	-	0.58	-	0.59
Net Debt/EBITDA FY	118.4%	116.2%	125.4%	102.4%	122.4%
Net debt / (cash) FY (€ mn)	240	233	239	223	236

Source: Company data, Bloomberg, J.P. Morgan estimates.

Investment Thesis, Valuation and Risks Atresmedia (Neutral; Price Target: €5.50)

Forecast Changes

We take a cautious view on the Spanish TV advertising outlook & reduce our 2018 / 19 NAR forecast from -1% / 2% to -3% / -1%. We expect A3M to underperform the wider market on a FY basis given the World Cup and loss of the Champions League in H2. Our 18E/19E EPS decreases by -6%/-12%.

Investment Thesis

We forecast medium-term revenue and EBIT growth of c1%. MediaScreen would also suggest that A3M may struggle to outperform during the slowdown phase of the economic cycle. With limited upside to our Price Target, we remain Neutral.

Valuation

We value Atresmedia through a DCF (WACC 9.8%, terminal growth of 0% vs. 8.8% / 1.0% respectively). We decrease our Sep-19 PT to €5.5 (from €8.1 previously) reflecting the downgrade to our forecasts.

Risks to Rating and Price Target

The main risks that we believe could prevent the stock from achieving our target price and rating are: 1) a lower-or higher-than-expected increase in TV advertising; 2) lower-or higher-than-expected audience share; 3) higher / lower programming costs.

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Daniel Kerven	Europe Equity Research
(44-20) 7134-3057	10 December 2018
daniel [e-mail]

Atresmedia: Summary of Financials

Income Statement	FY16A	FY17A	FY18E	FY19E	FY20E		Cash Flow Statement	FY16A	FY17A	FY18E	FY19E	FY20E
Revenue	1,021	1,052	1,046	1,045	1,047		Cash flow from operating activities	112	195	134	145	140
COGS	-	-	-	-	-		o/w Depreciation & amortization	18	18	17	15	16
Gross profit	-	-	-	-	-		o/w Changes in working capital	(52)	36	(15)	(5)	(5)
SG&A	-	-	-	-	-
Adj. EBITDA	202	202	190	193	188		Cash flow from investing activities	(10)	(31)	0	0	0
D&A	(18)	(18)	(17)	(16)	(16)		o/w Capital expenditure	(10)	(31)	0	0	0
Adj. EBIT	184	184	174	177	172		as % of sales	1.0%	2.9%	0.0%	0.0%	0.0%
Net Interest	(3)	(2)	(5)	(5)	(5)
Adj. PBT	175	177	169	173	167		Cash flow from financing activities	(78)	(122)	(128)	(138)	(138)
Tax	(46)	(34)	(32)	(33)	(32)		o/w Dividends paid	(90)	(207)	(128)	(138)	(138)
Minority Interest	0	0	0	0	0		o/w Shares issued/(repurchased)	(9)	0	0	0	0
Adj. Net Income	129	142	137	139	135		o/w Net debt issued/(repaid)	21	84	0	0	0
Reported EPS	0 57	0.63	0.61	0.62	0.60		Net change in cash	24	42	6	7	3
Adj. EPS	0.57	0.63	0.61	0.62	0.60			112	195	134	145	140
DPS	0.52	0.97	0.61	0.62	0.60		Adj. Free cash flow to firm
							y/y Growth	52.8%	74.6%	(31.3%)	8.4%	(3.6%)
Payout ratio	90.6%	153.2%	100.0%	100.0%	100.0%
Shares outstanding	225	225	225	225	225

Balance Sheet	FY16A	FY17A	FY18E	FY19E	FY20E		Ratio Analysis	FY16A	FY17A	FY18E	FY19E	FY20E
Cash and cash equivalents	2	25	26	28	26		Gross margin	-	-	-	-	-
Accounts receivable	292	302	311	309	308		EBITDA margin	19.8%	19.2%	18.2%	18 5%	17.9%
Inventories	396	391	391	391	391		EBIT margin	18.1%	17.5%	16.6%	17.0%	16.4%
Other current assets	0	0	0	0	0		Net profit margin	12.6%	13.5%	13.1%	13 3%	12.9%
Current assets	689	718	728	729	725		Organic Revenue growth	-	-	-	-	-
PP&E	621	631	630	631	631		Net debt/EBITDA	88.2%	118.4%	125.4%	122.4%	127.1%
LT investments					-
Other non current assets	0	0	0	0	(0)		Sales/Assets (x)	0.8	0.8	0.8	0.8	0.8
Total assets	1,310	1,349	1,358	1,359	1,357		Assets/Equity (x)	2.6	2.8	3.0	3.0	3.0
							Interest cover (x)	77.3	102.6	39.6	40.5	39.6
Short term borrowings					-		Tax rate	26.1%	19.5%	19.1%	19 2%	19.0%
Payables	612	639	639	639	639
Other short term liabilities	0	0	0	0	0		Revenue y/y Growth	5 2%	3.0%	(0.6%)	(0.0%)	0.1%
Current liabilities	612	639	639	639	639		EBITDA y/y Growth	22.2%	(0.0%)	(5.9%)	1 3%	(2.8%)
Long-term debt	180	265	265	265	265		EPS y/y Growth	25.3%	10.1%	(3.9%)	2.1%	(2.9%)
Other long term liabilities	0	0	0	0	0
Total liabilities	792	903	903	903	903
							Valuation	FY16A	FY17A	FY18E	FY19E	FY20E
Shareholders' equity	518	446	454	456	454		P/E (x)	8.3	7.6	7 9	7.7	8.0
Minority interests					-		FCFE Yield	10.3%	17.4%	12.0%	13.1%	12.6%
Total liabilities & equity	1,310	1,349	1,358	1,359	1,357		EV/EBITDA (x)	6.5	6 5	6.6	5.8	5.3
							Dividend Yield	10.9%	20.2%	12.7%	13.0%	12.6%
Net debt/(cash)	179	240	239	236	238

Source: Company reports and J.P. Morgan estimates.

Note: € in millions (except per-share data).Fiscal year ends Dec. o/w - out of which

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Daniel Kerven	Europe Equity Research
(44-20) 7134-3057	10 December 2018
daniel [e-mail]

Overweight

Company Data

Price (p)	652
Date Of Price	07 Dec 18
Price Target (p)	812
Price Target End Date	31-Dec-19
52-week Range (p)	870-652
Market Cap (£ bn)	6.91
Shares O/S (mn)	1,060

Informa

Informa Plc (INF.L;INF LN)

FYE Dec	2017A	2018E	2019E	2020E
Adj. EPS FY (p)	46.11	47.46	52.40	55.34
Revenue FY (£ mn)	1,758	2,393	2,875	2,969
EBITDA FY (£ mn)	585	744	946	984
EBITA (Calc) FY (£ mn)	546	711	911	947
EBITA Margin FY	31.0%	29.7%	31.7%	31.9%
Pretax Profit Adjusted FY	486	625	814	871
(£ mn)
DPS (Gross) FY (p)	20.45	21.27	22.12	23.00
Bloomberg EPS FY (p)	46.00	48.10	52.20	55.70

Source: Company data, Bloomberg, J.P. Morgan estimates.

Informa: J.P. Morgan DCF analysis

£ million, as at 31 Dec 19E

WACC	8.0%
Terminal growth	2.0%
Terminal ROIC	10%
NPV of cash flows until 2027E	3,966
NPV of Terminal Value	7,946
Implied Enterprise Value	11,912
Net Debt	-1,757
Pensions liability / other	6
Implied Equity Value	10,161
Number of shares (m)	1252
Fair value per share	812p

Source: J.P. Morgan estimates

Investment Thesis, Valuation and Risks Informa (Overweight; Price Target: 812p)

Investment Thesis

The events space (51% of Informa’s 18E revenues and 56% of profits) is one of our preferred subsectors in Media for us given 1) the limited impact from digital on the subsector (you can’t “Amazon” the events business); 2) upside potential from further consolidation in the space; 3) sustainable margins; 4) well-diversified portfolios with a high share of Emerging Markets exposure; and 5) a relatively manageable degree of cyclicality. We argue that Informa’s new events portfolio (Global Exhibitions plus UBM Events) is more defensive than the market anticipates given the high share of must attend events. In addition, we flag Informa’s remaining revenues are mostly subscription based. This makes Informa attractive in the current environment of macro uncertainty – the shares are attractive we believe after the recent weakness trading on 10.3x 2019E EV/EBITDA for a 2018-2021 EBITDA of +10% and we upgrade the shares to OW with an unchanged price target of 812p (+23% upside).

Valuation

We set our price target via DCF analysis (8.0% WACC, 2.0% terminal growth, both unchanged). Our Dec 2019 PT is 812p (unchanged).

Risks to Rating and Price Target

We see the following risks to our rating and price target: 1) USD depreciates against GBP; 2) the company finds further investment costs beyond the strategic plan or does not meet its targets; 3) Business Intelligence performs worse than expected; 4) any acquisitions are value-destroying and/or are not welcomed by the market; 5) cash returns are lower than anticipated; 6) margins prove less resilient and are lower than we currently anticipate; and 7) any macro or political impact on Knowledge & Networking or Exhibitions revenues and profit is worse than expected.

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