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]

Informa: Summary of Financials

Income Statement	FY16A	FY17A	FY18E	FY19E	FY20E		Cash Flow Statement	FY16A	FY17A	FY18E	FY19E	FY20E
Revenue	1,379	1,758	2,393	2,875	2,969		Cash flow from operating activities	336	434	451	722	809
COGS	-	-	-	-	-		o/w Depreciation & amortization	234	230	193	194	197
Gross profit	-	-	-	-	-		o/w Changes in working capital	21	(9)	(144)	(36)	15
SG&A	-	-	-	-	-
Adj. EBITDA	440	585	744	946	984		Cash flow from investing activities	(1,403)	(284)	(4,673)	(86)	(81)
D&A	(234)	(230)	(193)	(194)	(197)		o/w Capital expenditure	(52)	(79)	(87)	(89)	(90)
Adj. EBIT	205	355	551	751	787		as % of sales	3.8%	4.5%	3.6%	3.1%	3.0%
Net Interest	(40)	(59)	(87)	(100)	(85)
Adj. PBT	383	486	625	814	871		Cash flow from financing activities	1,056	(140)	4,026	(266)	(277)
Tax	(68)	(103)	(116)	(155)	(174)		o/w Dividends paid	(135)	(164)	(217)	(266)	(277)
Minority Interest	2	2	6	3	3		o/w Shares issued/(repurchased)	760	0	3,545	0	0
Adj. Net Income	313	381	503	656	693		o/w Net debt issued/(repaid)	431	184	703	0	0
Reported EPS	43 51	46.69	48.60	52.88	55.82		Net change in cash	(10)	10	(196)	370	451
Adj. EPS	42.99	46.11	47.46	52.40	55.34			317	402	435	715	787
DPS	19.30	20.45	21.27	22.12	23.00		Adj. Free cash flow to firm
							y/y Growth	(2.5%)	26.6%	8.2%	64.4%	10.1%
Payout ratio	44.4%	43.8%	43.8%	41.8%	41.2%
Shares outstanding	728	826	1,060	1,252	1,253

Balance Sheet	FY16A	FY17A	FY18E	FY19E	FY20E		Ratio Analysis	FY16A	FY17A	FY18E	FY19E	FY20E
Cash and cash equivalents	50	55	4	375	825		Gross margin	-	-	-	-	-
Accounts receivable	356	401	811	963	983		EBITDA margin	31.9%	33.3%	31.1%	32.9%	33.1%
Inventories	52	54	81	95	95		EBIT margin	14.9%	20.2%	23.0%	26.1%	26.5%
Other current assets	31	25	34	34	34		Net profit margin	22.7%	21.7%	21.0%	22.8%	23.4%
Current assets	489	536	930	1,466	1,936		Organic Revenue growth	1.6%	3.4%	4.2%	3.0%	3.3%
PP&E	24	32	87	101	114		Net debt/EBITDA	3.4	2.3	2 9	1 9	1.3
LT investments	17	16	197	273	367
Other non current assets	4,502	4,310	9,984	9,814	9,642		Sales/Assets (x)	0 3	0.4	0 3	0 3	0.3
Total assets	5,032	4,893	11,198	11,654	12,059		Assets/Equity (x)	2 3	2.3	1 9	1.7	1.7
							Interest cover (x)	10 9	9.9	8 5	9 5	11.5
Short term borrowings	175	303	303	303	303		Tax rate	17.8%	21.2%	18.5%	19.0%	20.0%
Payables	247	297	585	709	738
Other short term liabilities	627	590	1,077	1,077	1,077		Revenue y/y Growth	13.7%	27.5%	36.1%	20.2%	3.3%
Current liabilities	1,049	1,190	1,965	2,088	2,118		EBITDA y/y Growth	13.5%	33.1%	27.2%	27.1%	4.1%
Long-term debt	1,360	1,125	1,828	1,828	1,828		EPS y/y Growth	8.9%	7 3%	2.9%	10.4%	5.6%
Other long term liabilities	435	346	968	968	968
Total liabilities	2,844	2,661	4,761	4,885	4,914
							Valuation	FY16A	FY17A	FY18E	FY19E	FY20E
Shareholders' equity	2,187	2,219	6,464	6,800	7,179		P/E (x)	15 2	14.1	13.7	12.4	11.8
Minority interests	1	11	(28)	(31)	(34)		FCFE Yield	-	-	-	-	-
Total liabilities & equity	5,032	4,892	11,198	11,654	12,059		EV/EBITDA (x)	14.7	11.9	12 5	10.8	10.0
							Dividend Yield	3.0%	3.1%	3.3%	3.4%	3.5%
Net debt/(cash)	1,486	1,373	2,127	1,757	1,306

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

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

51

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Daniel Kerven (44-20) 7134-3057

daniel [e-mail]

Overweight

Company Data

Price (p)	131
Date Of Price	07 Dec 18
Price Target (p)	175
Price Target End Date	30-Sep-19
52-week Range (p)	183-131
Market Cap (£ bn)	5.26
Shares O/S (mn)	4,006

ITV: DCF (£m)

Wacc	9.4%
Terminal growth	1.3%
NPV 2018-30	4,423
Terminal value	2,855
EV	7,278
Less Net Debt	-958
Less earnouts	-260
Pension Deficit	0
Britbox – US / UK	37
Equity	6,097
No Shares	4,006
Equity value / share	152
M&A premium	15%
Equity value / share	175

Source: J.P. Morgan estimates.

Europe Equity Research

10 December 2018

ITV

ITV (ITV.L;ITV LN)

FYE Dec	2017A	2018E	2019E	2019E
			(Prev)	(Curr)
Adj. EPS FY (p)	16.03	15.34	14.23	14.04
Revenue FY (£ mn)	3,132	3,243	3,347	3,346
Adjusted EBITA FY (£ mn)	847	811	753	743
EBITA Margin FY	27.0%	25.0%	22.5%	22.2%
EBIT FY (£ mn)	842	807	750	740
Net Profit FY (£ mn)	642	615	570	562
Bloomberg EPS FY (p)	15.70	15.00	-	14.40
DPS (Net) FY (p)	7.80	8.00	8.00	8.00

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

Investment Thesis, Valuation and Risks ITV (Overweight; Price Target: 175p)

Forecast changes

We have marginally reduced our 2019 / 20 NAR estimates from -1.7% / -0.5% to -2.4% / -1.5% to reflect a slightly more conservative view on UK TV advertising outlook. As a result our 2019 / 20 EPS decrease by -1.5% / -3.5%.

Investment Thesis

ITV trades on c8.5x 2019E EPS and offers a 8% yield. While our economists believe a negotiated Brexit deal, which could drive a strong recovery in UK advertising, is the most likely scenario, uncertainty is likely to continue to weigh on the share price and advertising until a deal is negotiated and approved by the UK parliament.

We believe an extended video day, inelastic demand for TV advertising and structural growth in ITV's audience share as traditional pay TV penetration declines, will offset the gradual decline in linear audiences. Technology transforms the FTA TV user experience and technology / a shift in consumption opens up new revenue streams from: 1) data driven, targeted advertising for both on demand and, more importantly, linear audiences; 2) B2B distribution revenues; 3) Direct to Consumer / subscriptions; and 4) increased global demand for content. We see opportunities for broadcasters to co-operate / consolidate to benefit from increased scale, to create a compelling offering for consumers, cut costs & share the investment required to unlock new revenues streams. We also see scope for strategic upside: from vertical integration as telco’s seek to differentiate and better monetize their distribution; from US media companies seeking diversification, European distribution and scale in content; & tech giants seeking engagement and access to broadcasters’ huge volume / share of video ad inventory which will become addressable in the coming years.

Valuation

Our DCF based PT decreases from 215p to 175p as a result of our reduced estimates - this assumes a WACC of 9.4% (vs. 8.5% before), terminal growth of 1.3% and includes a 15% strategic premium.

Risks to Rating and Price Target

The following risks could prevent the stock from achieving our target price and rating: 1) UK TV advertising market weaker than our forecasts; 2) Weaker-than- expected audience share; 3) weaker programme and format sales for ITV Studios.

52

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

ITV: Summary of Financials

Income Statement	FY16A	FY17A	FY18E	FY19E	FY20E		Cash Flow Statement	FY16A	FY17A	FY18E	FY19E	FY20E
Revenue	3,064	3,132	3,243	3,346	3,442		Cash flow from operating activities	661	444	500	562	592
COGS	-	-	-	-	-		o/w Depreciation & amortization	43	35	44	48	52
Gross profit	-	-	-	-	-		o/w Changes in working capital	(28)	(58)	(15)	(15)	(15)
SG&A	-	-	-	-	-
Adj. EBITDA	928	877	851	789	818		Cash flow from investing activities	(174)	(129)	(170)	(130)	(131)
D&A	(43)	(35)	(44)	(48)	(52)		o/w Capital expenditure	(44)	(71)	(100)	(60)	(61)
Adj. EBIT	885	842	807	740	766		as % of sales	1.4%	2.3%	3.1%	1.8%	1.8%
Net Interest	(26)	(33)	(34)	(33)	(34)
Adj. PBT	553	500	573	579	606		Cash flow from financing activities	(206)	(762)	(336)	(363)	(427)
Tax	(160)	(154)	(146)	(134)	(139)		o/w Dividends paid	(667)	(498)	(334)	(463)	(427)
Minority Interest	(4)	(4)	(4)	(4)	(4)		o/w Shares issued/(repurchased)	(20)	(36)	0	0	0
Adj. Net Income	683	642	615	562	578		o/w Net debt issued/(repaid)	481	(228)	0	0	0
Reported EPS	17.03	16.03	15.34	14.04	14.43		Net change in cash	281	(447)	(5)	69	34
Adj. EPS	17.03	16.03	15.34	14.04	14.43			661	444	418	487	527
DPS	7.20	7.80	8.00	8.00	8.00		Adj. Free cash flow to firm
							y/y Growth	39.5%	(32.8%)	(5.7%)	16.4%	8.2%
Payout ratio	42.3%	48.7%	52.1%	57.0%	55.4%
Shares outstanding	4,010	4,006	4,006	4,006	4,006

Balance Sheet	FY16A	FY17A	FY18E	FY19E	FY20E		Ratio Analysis	FY16A	FY17A	FY18E	FY19E	FY20E
Cash and cash equivalents	561	126	100	114	106		Gross margin	-	-	-	-	-
Accounts receivable	990	1,136	1,051	1,006	960		EBITDA margin	30.3%	28.0%	26.2%	23.6%	23.8%
Inventories	-	-	-	-	-		EBIT margin	28.9%	26 9%	24.9%	22.1%	22.3%
Other current assets	0	0	0	0	0		Net profit margin	22.3%	20 5%	19.0%	16.8%	16.8%
Current assets	1,551	1,262	1,151	1,120	1,066		Organic Revenue growth	-	-	-	-	-
PP&E	2,032	2,089	2,028	1,993	1,957		Net debt/EBITDA	68.9%	106 3%	112.6%	119.6%	116.4%
LT investments				-	-
Other non current assets	0	0	0	0	0		Sales/Assets (x)	0 9	0.9	1.0	1.1	1.1
Total assets	3,583	3,351	3,179	3,113	3,023		Assets/Equity (x)	3 5	4.7	4.7	4.8	4.8
							Interest cover (x)	35.7	26.6	25.1	23.6	24.4
Short term borrowings				-	-		Tax rate	28.9%	30.8%	25.5%	23.1%	22.9%
Payables	1,628	1,563	1,463	1,403	1,342
Other short term liabilities	0	0	0	0	0		Revenue y/y Growth	3.1%	2.2%	3.5%	3.2%	2.9%
Current liabilities	1,628	1,563	1,463	1,403	1,342		EBITDA y/y Growth	1.9%	(5 5%)	(3.0%)	(7.3%)	3.8%
Long-term debt	1,200	1,058	1,058	1,058	1,058		EPS y/y Growth	3.5%	(5 9%)	(4.3%)	(8.5%)	2.8%
Other long term liabilities	0	0	0	0	0
Total liabilities	2,828	2,621	2,521	2,461	2,400
							Valuation	FY16A	FY17A	FY18E	FY19E	FY20E
Shareholders' equity	755	730	658	652	623		P/E (x)	7.7	8.2	8.6	9.4	9.1
Minority interests				-	-		FCFE Yield	11.4%	7.3%	7.2%	8.5%	9.3%
Total liabilities & equity	3,583	3,351	3,179	3,113	3,023		EV/EBITDA (x)	6 9	7.3	7 5	7.4	6.6
							Dividend Yield	5.5%	5.9%	6.1%	6.1%	6.1%
Net debt/(cash)	639	932	958	944	952

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

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

53

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Daniel Kerven (44-20) 7134-3057

daniel [e-mail]

Neutral

Company Data

Price (€)	14.75
Date Of Price	07 Dec 18
Price Target (€)	17.00
Price Target End Date	31-Dec-19
52-week Range (€)	24.34-14.71
Market Cap (€ bn)	1.86
Shares O/S (mn)	0

M6 Group: DCF

Wacc (%)	9.4%
Terminal growth rate	1.0%
NPV
Present Value of FCF (18-30)	1,218
Present Value of Terminal Value	790
Enterprise Value	2,008
Associates	20
(Net Debt)/Net Cash	143
Equity Value	2,170
Outstanding Shares (bl)	126
Per share	17

Source: J.P. Morgan estimates.

Europe Equity Research

10 December 2018

M6

M6 (MMTP.PA;MMT FP)

FYE Dec	2017A	2018E	2019E	2019E
			(Prev)	(Curr)
Adj. EPS FY (€)	1.27	1.38	1.44	1.36
Revenue FY (€ mn)	1,387	1,406	1,411	1,387
EBITDA FY (€ mn)	383	403	401	387
EBIT FY (€ mn)	246	270	273	258
EBIT Margin FY	17.7%	19.2%	19.3%	18.6%
Bloomberg EPS FY (€)	1.17	1.36	-	1.40
Net debt / (cash) FY (€ mn)	34	(143)	(160)	(151)
Net Att. Income FY (€ mn)	161	175	182	173

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

Investment Thesis, Valuation and Risks M6 (Neutral; Price Target: €17.00)

Forecast changes

We have reduced our estimates to account for a more conservative view on French TV & Radio advertising outlook. As a result our 2019 / 20 group revenues decrease by -2% / -3% and our EPS decrease by -5% / -9%.

Investment Thesis

Our underlying view on FTA broadcasters is positive. Given the lack of meaningful upside to our PT, we remain Neutral. We continue to favour other FTA broadcasters such as Pro7 & ITV.

Valuation

Our DCF based Price Target (WACC of 9.4% from 8.6% before, terminal growth of 1%) decreases from €21.0 to €17.0 to reflect our reduced estimates.

Risks to Rating and Price Target

The following risks that could prevent the stock from achieving our target price and rating include: 1) higher / lower-than-expected advertising revenues in FY18 / FY19E; 2) lower / higher-than-expected operating costs in 2018 / 2019E; 3) value enhancing / destructing acquisitions; 4) increase / decrease in audience share.

54

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

M6: Summary of Financials

Income Statement	FY16A	FY17A	FY18E	FY19E	FY20E		Cash Flow Statement	FY16A	FY17A	FY18E	FY19E	FY20E
Revenue	1,279	1,387	1,406	1,387	1,390		Cash flow from operating activities	138	110	158	150	153
COGS	-	-	-	-	-		o/w Depreciation & amortization	140	137	133	128	133
Gross profit	-	-	-	-	-		o/w Changes in working capital	(21)	(32)	(5)	(5)	(5)
SG&A	-	-	-	-	-
Adj. EBITDA	385	383	403	387	386		Cash flow from investing activities	(17)	(199)	137	(2)	(2)
D&A	(140)	(137)	(133)	(128)	(133)		o/w Capital expenditure	(17)	(198)		0	0
Adj. EBIT	244	246	270	258	253		as % of sales	1.3%	14.3%	-	0.0%	0.0%
Net Interest	1	(2)	(3)	(2)	(2)
Adj. PBT	248	248	269	258	252		Cash flow from financing activities	(123)	(32)	(119)	(139)	(155)
Tax	(94)	(88)	(94)	(85)	(80)		o/w Dividends paid	(106)	(107)	(119)	(139)	(155)
Minority Interest					-		o/w Shares issued/(repurchased)	(15)	(8)	0	0	0
Adj. Net Income	154	161	175	173	172		o/w Net debt issued/(repaid)	(2)	83	0	0	0
Reported EPS	1.21	1.27	1.38	1.36	1.36		Net change in cash	(1)	(120)	177	8	(4)
Adj. EPS	1.21	1.27	1.38	1.36	1.36			139	110	158	150	153
DPS	0.85	0.95	1.11	1.23	1.23		Adj. Free cash flow to firm
							y/y Growth	245.3%	(20.6%)	44.0%	(5.2%)	2.0%
Payout ratio	70.0%	74.9%	80 5%	90.6%	90.6%
Shares outstanding	127	127	127	127	127

Balance Sheet	FY16A FY17A FY18E FY19E FY20E						Ratio Analysis	FY16A	FY17A	FY18E	FY19E	FY20E
Cash and cash equivalents	174	54	231	240	236		Gross margin	-	-	-	-	-
Accounts receivable					-		EBITDA margin	30.1%	27.6%	28.6%	27 9%	27.8%
Inventories					-		EBIT margin	19.1%	17.7%	19.2%	18.6%	18.2%
Other current assets	0	0	0	0	0		Net profit margin	12.1%	11.6%	12.4%	12 5%	12.4%
Current assets	174	54	231	240	236		Organic Revenue growth	-	-	-	-	-
PP&E	1,087	1,463	1,341	1,364	1,384		Net debt/EBITDA	(44.8%)	9.0%	(35.4%)	(39.0%)	(38.0%)
LT investments					-
Other non current assets	0	0	0	0	0		Sales/Assets (x)	1.0	1.0	0.9	0.9	0.9
Total assets	1,261	1,517	1,572	1,604	1,620		Assets/Equity (x)	2.0	2.2	2.2	2.2	2.1
							Interest cover (x)	-	191.5	150.7	162.5	164.5
Short term borrowings	2	89	89	89	89		Tax rate	37.9%	35.2%	35.0%	33.0%	31.7%
Payables					-
Other short term liabilities	0	0	0	0	0		Revenue y/y Growth	2 3%	8 5%	1.4%	(1.4%)	0.2%
Current liabilities	2	89	89	89	89		EBITDA y/y Growth	19.1%	(0.4%)	5 2%	(3.9%)	(0.2%)
Long-term debt					-		EPS y/y Growth	32.7%	4 5%	8.8%	(1.3%)	(0.3%)
Other long term liabilities	643	766	766	766	766
Total liabilities	645	855	855	855	855
							Valuation	FY16A	FY17A	FY18E	FY19E	FY20E
Shareholders' equity	616	662	717	749	765		P/E (x)	12.1	11.6	10.7	10.8	10.9
Minority interests					-		FCFE Yield	7.4%	5 9%	8 3%	7.9%	8.1%
Total liabilities & equity	1,261	1,517	1,572	1,604	1,620		EV/EBITDA (x)	4.9	5.0	4.3	4.1	3.7
							Dividend Yield	5.8%	6.4%	7 5%	8.4%	8.3%
Net debt/(cash)	(173)	34	(143)	(151)	(147)

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

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

55

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Daniel Kerven (44-20) 7134-3057

daniel [e-mail]

Underweight

Company Data

Price (€)	2.60
Date Of Price	07 Dec 18
Price Target (€)	2.00
Price Target End Date	30-Sep-19
52-week Range (€)	3.46-2.43
Market Cap (€ bn)	2.95
Shares O/S (mn)	1,136

Mediaset DCF valuation

€ million
WACC	9.8%
G	0.3%
NPV 2018-30	2,321
Terminal value	1,297
EV	3,618
Less Net Debt	-749
Less minorities	-1,238
Pay TV value	200
EI Tower	448
Equity	2,280
No Shares	1,132
Equity value / share (€)	2.0

Source: J.P. Morgan estimates.

Europe Equity Research

10 December 2018

Mediaset

Mediaset (Mediaset SPA) (MS.MI;MS IM)

FYE Dec	2017A	2018E	2019E	2019E
			(Prev)	(Curr)
Adj. EPS FY (€)	0.10	0.15	0.22	0.21
Revenue FY (€ mn)	3,631	3,378	3,074	3,049
Adjusted EBITDA FY (€	478	461	544	520
mn)
EBITDA Margin FY	13.2%	13.7%	17.7%	17.1%
Adjusted EBIT FY (€ mn)	344	373	464	441
Net Profit FY (€ mn)	115	173	251	237
Net debt / (cash) FY (€ mn)	1,302	650	594	611
DPS (Net) FY (€)	0.00	0.08	0.13	0.13

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

Investment Thesis, Valuation and Risks Mediaset (Underweight; Price Target: €2.00)

Investment Thesis

We downgrade Mediaset to UW. Mediaset has outperformed its peers by c25% over the past 3 months despite advertising downgrades in both Italy (driven by the absence of sports events / rights in Q4 2018 / 2019) and Spain, and a significant deterioration in Italian PMI’s in October to the lowest level in 5 years.

Mediaset is the most expensive broadcaster under our coverage, trading on 15x 2019 EV / NOPAT, a 40% premium to the peers, for only slightly stronger growth (c6% vs 4%). We would argue that Mediaset should trade at a discount to the peer group as its earnings are relatively sensitive to the macro environment as a purer play on advertising, with lower margins / higher financial leverage and hence greater operational gearing.

Mediaset ranks poorly in MediaScreen in both the slowdown (31st /32) given small size, high risk, low quality, low growth, and also in the contraction (30th) where the benefit to Mediaset of the increased importance of value at the expense of growth is offset by the increased weighting of risk. Mediaset ranks highly in the “Recovery” (4th) and “Expansion” (8th) but it seems likely that even in the event of a short & shallow slowdown it will be several months before the investment cycle moves back to “Recovery”.

Valuation

We have cut our 2019 earnings by 6% and by 8% in 2020 to reflect weak PMI’s, deficit risks and our reduced GDP growth assumptions (JPMe). Our 2020 EPS is now 7% below the consensus. We cut our PT from €3.1 to €2.0 to reflect forecasts downgrades and also that we have reduced the value of a pay TV settlement with Vivendi / benefit from an ongoing agreement from €500m to €200m to reflect that a legal process is likely to take many years and there seems to be little / no progress on finding a commercial agreement.

Risks to Rating and Price Target

Risks to target price and rating: 1) better advertising trends in Italy and Spain than we have anticipated, 2) stronger growth in the Italian pay-TV subscriber base, 3) better - than-expected profitability of the Italian pay-TV business, 4) any positive update involving Vivendi (shareholding, strategy, legal situation).

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

Mediaset: Summary of Financials

Income Statement	FY16A	FY17A	FY18E	FY19E	FY20E		Cash Flow Statement	FY16A	FY17A	FY18E	FY19E	FY20E
Revenue	3,667	3,631	3,378	3,049	3,056		Cash flow from operating activities	(185)	(48)	(5)	82	147
COGS	-	-	-	-	-		o/w Depreciation & amortization					-
Gross profit	-	-	-	-	-		o/w Changes in working capital	44	(7)	(37)	(24)	(22)
SG&A	-	-	-	-	-
Adj. EBITDA	274	478	461	520	554		Cash flow from investing activities	(18)	(21)	(10)	(10)	(10)
D&A	(134)	(134)	(88)	(80)	(70)		o/w Capital expenditure	(15)	(14)	(10)	(10)	(10)
Adj. EBIT	141	344	373	441	484		as % of sales	0.4%	0.4%	0.3%	0.3%	0.3%
Net Interest	(88)	(29)	(21)	(21)	(19)
Adj. PBT	55	324	383	452	498		Cash flow from financing activities	16	(306)	(465)	(408)	(217)
Tax	(30)	(86)	(110)	(122)	(134)		o/w Dividends paid	(165)	(173)	(195)	(198)	(167)
Minority Interest	(68)	(123)	(100)	(94)	(93)		o/w Shares issued/(repurchased)	(87)	(133)	0	(60)	(50)
Adj. Net Income	(43)	115	173	237	271		o/w Net debt issued/(repaid)	268	0	(270)	(150)	0
Reported EPS	(0.04)	0.10	0.15	0 21	0 24		Net change in cash	(186)	(374)	(480)	(336)	(80)
Adj. EPS	(0.04)	0.10	0.15	0.21	0.24			62	93	134	207	288
DPS	0.00	0.00	0.08	0.13	0.14		Adj. Free cash flow to firm
							y/y Growth	(81.4%)	49.1%	44.4%	54.3%	39.6%
Payout ratio	0.0%	0.0%	50.2%	60.2%	60 2%
Shares outstanding	1,136	1,136	1,136	1,136	1,136

Balance Sheet	FY16A	FY17A	FY18E	FY19E	FY20E		Ratio Analysis	FY16A	FY17A	FY18E	FY19E	FY20E
Cash and cash equivalents	329	90	473	362	438		Gross margin	-	-	-	-	-
Accounts receivable	1,688	2,049	2,269	2,303	2,335		EBITDA margin	7.5%	13.2%	13.7%	17.1%	18.1%
Inventories					-		EBIT margin	3.8%	9.5%	11.0%	14.4%	15.8%
Other current assets	0	0	0	0	0		Net profit margin	(1.2%)	3.2%	5.1%	7.8%	8.9%
Current assets	2,017	2,139	2,741	2,664	2,773		Organic Revenue growth	-	-	-	-	-
PP&E	4,518	4,200	3,457	3,424	3,400		Net debt/EBITDA	304.0%	272.6%	140.9%	117.4%	96.4%
LT investments					-
Other non current assets	0	0	0	0	0		Sales/Assets (x)	0.5	0.6	0.5	0 5	0 5
Total assets	6,535	6,339	6,199	6,089	6,173		Assets/Equity (x)	2.5	2 5	2.3	2 2	2 2
							Interest cover (x)	3.1	16.6	21.6	24 9	29.0
Short term borrowings	1,162	1,392	1,122	972	972		Tax rate	54.2%	26.4%	28.8%	26.9%	26.8%
Payables	2,837	2,337	2,337	2,337	2,337
Other short term liabilities	0	0	0	0	0		Revenue y/y Growth	4.0%	(1.0%)	(7.0%)	(9.7%)	0.2%
Current liabilities	3,999	3,729	3,459	3,309	3,309		EBITDA y/y Growth	(25.7%)	74.2%	(3.5%)	12.8%	6.5%
Long-term debt	-	-	-	-	-		EPS y/y Growth	(457.3%)	(369.3%)	50.1%	37.1%	14.7%
Other long term liabilities	0	0	0	0	0
Total liabilities	3,999	3,729	3,459	3,309	3,309
							Valuation	FY16A	FY17A	FY18E	FY19E	FY20E
Shareholders' equity	2,536	2,610	2,740	2,780	2,864		P/E (x)	NM	25.7	17.1	12 5	10 9
Minority interests					-		FCFE Yield	0.0%	2.2%	3.8%	6.3%	9.1%
Total liabilities & equity	6,535	6,339	6,199	6,089	6,173		EV/EBITDA (x)	13.2	7.6	7.8	7.0	6 5
							Dividend Yield	0.0%	0.0%	2.9%	4.8%	5.5%
Net debt/(cash)	834	1,302	650	611	534

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 (44-20) 7134-3057

daniel [e-mail]

Neutral

Company Data

Price (€)	5.78
Date Of Price	07 Dec 18
Price Target (€)	6.90
Price Target End Date	30-Sep-19
52-week Range (€)	9.81-5.52
Market Cap (€ bn)	2.35
Shares O/S (mn)	406

Mediaset Espana DCF valuation

(€m)

Wacc	9.4%
G	0.0%
Present Value of FCF (18-30)	1,392
Present Value of Terminal Value	712
Enterprise Value	2,104
(Net Debt)/Net Cash	146
Equity Value	2,249
Outstanding Shares (bl)	327
Equity value per Share (€)	6.9

Source: J.P. Morgan estimates.

Europe Equity Research

10 December 2018

Mediaset España

Mediaset Espana Comunicacion SA (TL5.MC;TL5 SM)

FYE Dec	2017A	2018E	2019E	2019E
			(Prev)	(Curr)
Adj. EPS FY (€)	0.62	0.63	0.62	0.61
Adj P/E FY	9.3	9.1	9.3	9.5
Net Profit FY (€ mn)	205	208	201	196
Adjusted EBITDA FY (€	262	262	264	256
mn)
EBITDA Margin FY	26.3%	26.3%	26.5%	26.0%
Bloomberg EPS FY (€)	0.58	0.60	-	0.59
Revenue FY (€ mn)	996	994	994	985
Net Debt FY (€ mn)	(103)	(113)	(57)	(51)

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

Investment Thesis, Valuation and Risks

Mediaset España (Neutral; Price Target: €6.90)

Investment Thesis

We downgrade Mediaset Espana from OW to Neutral. Mediaset Espana has outperformed its peers by c10% over the past 3 months with cost savings offsetting slower ad growth, and the shares supported by its cheap valuation. While it continues to trade on <9x 2019 EV/NOPAT, a c15% discount to peers for only slightly slower 3 yr NOPAT growth of c3% vs 4%, it may struggle to outperform our wider universe until leading macro indicators and ad momentum improve.

Q119 should well benefit from the later timing of Easter, although this will put pressure on Q2 which also faces a tough comp without the World Cup. We downgrade our 2019 EPS by c7% to reflect a more cautious macro outlook and slower ad growth – our 2020 EPS is broadly in line with the consensus given our assumption that Mediaset Espana can manage its costs to maintain EBITA in a modest slowdown.

MediaScreen - Mediaset Espana ranks poorly (27/32) in the current “slowdown” phase of the investment cycle given low growth but its ranking improves (18/32) in the “contraction” with support from its cheap valuation and strong balance sheet.

Valuation

Our Sep-19 DCF-based target price decreases from €8.6 to €6.9 (WACC 9.4%, terminal growth of 0%, from 8.6% / 1% respectively) as a result of our forecasts changes (lower TV NAR on more conservative Spanish TV advertising outlook).

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) Higher / lower-than-expected increases in TV advertising revenues; 2) higher / lower-than expected audience share in FY18/ FY19; 3) significant deterioration of the European macro environment; and 4) higher / lower-than- expected programming costs.

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

Mediaset España: Summary of Financials

Income Statement	FY16A	FY17A	FY18E	FY19E	FY20E		Cash Flow Statement	FY16A	FY17A	FY18E	FY19E	FY20E
Revenue	992	996	994	985	986		Cash flow from operating activities	241	227	196	194	193
COGS	-	-	-	-	-		o/w Depreciation & amortization	9	9	8	10	10
Gross profit	-	-	-	-	-		o/w Changes in working capital	28	(7)	0	0	0
SG&A	-	-	-	-	-
Adj. EBITDA	241	262	262	256	255		Cash flow from investing activities	(3)	7	0	0	0
D&A	(9)	(9)	(8)	(10)	(10)		o/w Capital expenditure	(3)		0	0	0
Adj. EBIT	232	253	254	246	244		as % of sales	0.3%	-	0.0%	0.0%	0.0%
Net Interest	1	2	10	1	1
Adj. PBT	234	255	264	247	245		Cash flow from financing activities	(253)	(276)	(185)	(256)	(216)
Tax	(55)	(50)	(56)	(52)	(51)		o/w Dividends paid	(165)	(173)	(195)	(198)	(167)
Minority Interest	0	0	0	0	0		o/w Shares issued/(repurchased)	(90)	(105)	0	(60)	(50)
Adj. Net Income	179	205	208	196	194		o/w Net debt issued/(repaid)	0	0	0	0	0
Reported EPS	0.54	0.62	0.63	0.61	0.61		Net change in cash	(15)	(42)	11	(62)	(23)
Adj. EPS	0.54	0.62	0.63	0.61	0.61			242	229	204	195	194
DPS	0.52	0.60	0.61	0.52	0.53		Adj. Free cash flow to firm
							y/y Growth	12.4%	(5.5%)	(11.1%)	(4.2%)	(0.7%)
Payout ratio	95.6%	96.1%	96 2%	86.3%	86.3%
Shares outstanding	329	331	327	323	316

Balance Sheet	FY16A	FY17A	FY18E	FY19E	FY20E		Ratio Analysis	FY16A	FY17A	FY18E	FY19E	FY20E
Cash and cash equivalents	193	136	146	84	62		Gross margin	-	-	-	-	-
Accounts receivable	244	272	272	272	272		EBITDA margin	24.3%	26.3%	26.3%	26.0%	25.8%
Inventories					-		EBIT margin	23.4%	25.4%	25.5%	25.0%	24.8%
Other current assets	0	0	0	0	0		Net profit margin	18.0%	20.6%	20.9%	19 9%	19.7%
Current assets	437	408	419	357	334		Organic Revenue growth	-	-	-	-	-
PP&E	866	827	826	824	822		Net debt/EBITDA	(64.9%)	(39.2%)	(43 3%)	(20.0%)	(11.2%)
LT investments					-
Other non current assets	0	0	0	(0)	0		Sales/Assets (x)	0.7	0.8	0.8	0.8	0.8
Total assets	1,303	1,235	1,245	1,181	1,156		Assets/Equity (x)	1.3	1.3	1.4	1.4	1.4
							Interest cover (x)	-	-	-	-	-
Short term borrowings	-	-	-	-	-		Tax rate	23.6%	19.6%	21.2%	21.0%	20.9%
Payables	283	302	302	302	302
Other short term liabilities	0	0	0	0	0		Revenue y/y Growth	2.0%	0.4%	(0 3%)	(0.9%)	0.2%
Current liabilities	283	302	302	302	302		EBITDA y/y Growth	8 2%	8.8%	(0 2%)	(2.1%)	(0.5%)
Long-term debt	37	33	33	33	33		EPS y/y Growth	8.8%	14.1%	2 3%	(4.7%)	1.4%
Other long term liabilities	0	0	0	0	0
Total liabilities	319	335	335	335	335
							Valuation	FY16A	FY17A	FY18E	FY19E	FY20E
Shareholders' equity	983	900	910	846	821		P/E (x)	10.6	9.3	9.1	9.5	9.4
Minority interests					-		FCFE Yield	12.8%	12.0%	10.9%	10 5%	10.6%
Total liabilities & equity	1,303	1,235	1,245	1,181	1,156		EV/EBITDA (x)	7.2	6.6	6.6	6.2	5.4
							Dividend Yield	9.0%	10.3%	10.6%	9.0%	9.2%
Net debt/(cash)	(156)	(103)	(113)	(51)	(28)

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 (44-20) 7134-3057

daniel [e-mail]

Neutral

Company Data

Price (p)	912
Date Of Price	07 Dec 18
Price Target (p)	890
Price Target End Date	30-Sep-19
52-week Range (p)	981-651
Market Cap (£ bn)	7.42
Shares O/S (mn)	813

Pearson DCF analysis

WACC	8.7%
Terminal growth	1.2%
NPV of cash flows to 2030E	4,158
NPV of Terminal Value	3,212
Implied Enterprise Value	7,369
Net debt (end 17E)	-412
Minorities	-25
Implied Equity Value	6,933
Number of shares (m)	779
Fair Value	890

Source: J.P. Morgan estimates.

Europe Equity Research

10 December 2018

Pearson

Pearson (PSON.L;PSON LN)

FYE Dec	2016A	2017A	2018E	2018E	2019E	2019E
			(Prev)	(Curr)	(Prev)	(Curr)
Adj. EPS FY (p)	58.84	54.08	71.11	71.44	60.10	60.74
Revenue FY (£ mn)	4,552	4,513	4,279	4,303	4,279	4,378
EBITDA FY (£ mn)	785	738	733	736	825	832
EBITDA Margin FY	17.2%	16.4%	17.1%	17.1%	19.3%	19.0%
Operating profit FY (£ mn)	635	576	555	558	633	639
Operating margin FY	13.9%	12.8%	13.0%	13.0%	14.8%	14.6%
DPS (Net) FY (p)	52.00	17.00	28.44	28.58	24.04	24.29
Bloomberg EPS FY (p)	55.30	52.40	-	59.20	-	56.90

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

Investment Thesis, Valuation and Risks Pearson (Neutral; Price Target: 890p)

Forecast Changes

We have updated our estimates for FX. We maintain our FY18 organic growth forecasts of -4% for US Higher Education, -1% for North America, +2% for Core and -1% for Growth. Our group organic growth remains -0.2% and our EBIT increases from £555m to £558m solely on FX. Our 2018E EPS increases to 71.4p (from 71.1p) as a result. Our 2019E EPS increases by 1% to 60.7p (vs. 60.1p before) as the impact of marginally reduced estimate for North America growth is offset by stronger FX tailwinds.

Investment Thesis

We continue to expect c12-15% EBIT growth in 2019 / 20 & to forecast £105m of incremental cost savings more than offsetting underlying cost inflation. We expect EBIT growth of 12% in 2020 supported by organic growth of 1.0% (vs. 1.6% before as we reduced North America from +1.2% to +0.3%) and a further £100m of savings. We expect PSON to have net cash of c£80m in 2020, prior to the disposal of K12, highlighting the potential for cash returns.

Valuation

Our DCF-based PT remains unchanged at 890p. We continue to assume a mediumterm operating margin of 15% and terminal growth of 1.2% and remain Neutral.

Risks to Rating and Price Target

We see the following upside / downside risks to our estimates, rating and price target: 1) FX movements; 2) Operating margins / cash flow are better / worse than expected due to the economic environment or restructuring charges; 3) Govt education spend is higher / lower than expected; 4) Unemployment rates begin to rise / fall; 5) College enrollments and / or college student spend is higher / lower than expected, or college book returns by retailers are lower / higher than expected; 6) Any M&A is more / less value accretive than expected; 7) Regulatory / political risk; and 8) Competitive pressure (e.g. from print rental, traditional competitors, open education resources etc).

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