Shares in Chinese online video giants Youku and Tudou took a dive this week as the Beijing government cracks down on online video with stricter regulations. The new laws will require Internet video providers to pre-screen all programming before making it available.
U.K. TV networks giant ITV and Germany’s ProSiebenSat.1 are among the European entertainment stocks that analysts expect to do well in 2015.
“In what we think will be more of a stock-picking than a macroeconomic/subsector-driven year, we prefer exposure to stocks that reward shareholders, increase earnings and protect themselves from structural challenges,” Nomura analysts wrote in a report in December. The firm’s top picks for the year are ITV, ProSieben and Vivendi.
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Nomura late in the year upgraded Vivendi’s stock from “neutral” to “buy.” Wrote Nomura: “The new management team led by [chairman] Vincent Bollore represents a break from the past. First, Mr. Bollore’s interests are aligned with shareholders through his 5-percent stake in Vivendi. Second, he has presided over the refocus on media and the sales of SFR and GVT for above-consensus prices by generating auctions among various bidders.”
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Third, at Havas, which his Bollore Group controls, he also “had a record of being cautious on large acquisitions,” the firm added. “Vivendi intends to focus on organic improvements at Canal Plus and music.
Nomura also has a “buy” rating on the stock of German TV company ProSieben. Wrote the firm: “ProSieben has had a challenging 2014 with German macroeconomic concerns weighing on the stock, which has left it down 11 percent. … Despite these concerns, the German-speaking division continues to benefit from positive structural drivers from the growth in HD carriage revenues and TV gaining share from print.”
Digital and other businesses outside of the company’s core TV business should also “show ongoing high levels of growth,” Nomura predicts.
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Nomura continues to rate ITV shares a “buy,” saying, “We believe underlying trends will remain robust for 2015, ITV’s balance sheet will continue to be deployed via further cash returns or accretive M&A and valuation remains compelling.” The firm continued: “ITV should be supported by events such as the Rugby World Cup and, combined with a solid U.K. macroeconomic backdrop, means that we forecast robust 2.5 percent ad growth.”
The company’s ITV Studios production unit is also expected to have “a strong year with ITV producing shows such as [NBC Charles Manson drama] Aquarius [starring David Duchovny] and Texas Rising [starring Bill Paxton, Ray Liotta and Brendan Fraser], which helps drive our 12 percent 2015 revenue forecast,” said Nomura.
Liberum Capital analyst Ian Whittaker also likes ITV, which is his top stock pick. “The company is in a very good position,” he told THR. “The TV advertising [is] resilient, it controls [about] 45 percent of the U.K. TV ad market, has a strong balance sheet, is growing in content and there is potential upside if retransmission revenues for ITV1 are allowed.”
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Peel Hunt analyst Alex DeGroote said, “You won’t go wrong with ITV,” but he also likes UTV Media, a TV company based in Northern Ireland, for 2015 as “a neat macro/micro play on Ireland.”
Explained his colleague Malcolm Morgan: “UTV is on the cusp of launching UTV Ireland, a new channel in southern Ireland that will use ITV’s core programming [previously licensed by network TV3]. We see this as a very exciting development in a strengthening European economy. This opportunity has been spun out of fresh air by a very canny management team.” He concluded: “This will be a big year for the company.”
Email: Georg.Szalai@THR.com
Twitter: @georgszalai
