Mixed First Half for Big European Entertainment Stocks

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LONDON - The first half of 2012 was a mixed bag for big European entertainment stocks.

The Euro crisis, economic concerns and the related advertising market challenges, as well as company-specific challenges saw such sector biggies as the U.K.'s BSkyB, France's Vivendi and Italy's Mediaset reach the mid-year mark on Friday with stock prices below the year-end 2011.

But German TV giant ProSiebenSat.1 and British broadcaster ITV saw double-digit gains.

The pan-European Euro Stoxx 50 stock index closed June at 2,264.72, down 2.2 percent from the year-end mark of 2,316.55.

U.K. satellite TV powerhouse BSkyB, in which Rupert Murdoch's News Corp. has a 39 percent stake, lost 3.6 percent in value over the course of the first six months of 2012. Analysts have cited solid business trends, but increased competition as seen when the company recently faced a tough challenge from telecom giant BT for the English Premier League soccer rights.

"Fundamentally, we like BSkyB, but the shares are unlikely to outperform until there is more comfort on how the competitive landscape will pan out," UBS analyst Polo Tang said earlier this month in a report.

Vivendi's stock finished the first half of 2012 down 3.7 percent despite a recent run-up and a Friday jump driven by the news that CEO Jean-Bernard Levy had stepped down amid strategic disagreements with the company's board.

The stock recently hit nine-year lows as the company predicted two years of losses due to challenges in a telecom business. Investors and analysts were also disappointed that the conglomerate wasn't addressing its holding discount due to its wide range of assets, who include Universal Music Group, video game firm Activision Blizzard, French pay TV arm Canal+ and various telecom businesses. 

Silvio Berlusconi's Mediaset was worst hit among big European entertainment players, finishing the first half of the year down 31 percent.

The broadcaster's first-quarter results last month "were poor, and there remains no end in sight to the misery," wrote Sanford C. Bernstein analyst Claudio Aspesi in a report that highlighted weak advertising trends. "Management indicated the second quarter will remain challenging, and we believe that structural issues persist."

ITV hasn't had to complain about ad sluggishness. Its broadcast ad revenue declined 1 percent in the opening quarter of 2012, but it forecast that its net advertising revenue during the first half of 2012 would come in ahead of the market, eyeing a gain of 3 percent thanks to the Euro 2012 soccer tournament. It also predicted it would outperform the broader ad market, which it said continues to be "broadly flat," for the full year.

ITV's stock gained 14 percent in the first half of the year, even though there have recently been some concerns that the company's performance could only slump from here. UBS analyst Tamsin Garrity said in a recent investor note that media buyers signal a July advertising decline, but added that "in the fourth quarter, ITV net advertising was down 2 percent, providing an easy comparison in the fourth quarter."

Aspesi said only time will tell if ITV continues its positive trends. "Whether this performance can be sustained in the second half, however, remains a huge question mark," he said. "The same question mark that characterizes the overall economy across most of Europe."

Meanwhile, Germany's ProSieben has been one of the strongest media and entertainment stock performers in Europe. It is up 32.3 percent year-to-date.

In May, the TV company showed that it avoided the worst of the Euro crisis in the first quarter with a single-digit revenue gain thanks to stronger performances in the German and Scandinavian markets.

Analysts have different views on where the second half of 2012 could bring the most upside.

"This is a tough time for most," but "ITV remains the "surprise" story of 2012," Aspesi told THR. "The combination of a resilient TV ad market and good content sales has surprised the market."

Will Smith, analyst at Jefferies & Co., said he likes Vivendi's upside potential right now. "It is the most interesting restructuring story in European media," he told THR. "It is defensive by media standards with loads of specific catalysts on the horizon."

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

 

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