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The media sector is arguably one of the most vibrant and exciting for investors in the US and elsewhere.
Companies constantly innovate to keep pace with changing consumer habits and demands; Google, Apple, Netflix and Facebook are essentially the News Corporation or Pearson groups of today.
In South Africa, however, the transition from old to new media has been tough from an investment point of view. Media companies like Times Media Group, Primedia and others have delisted from the JSE.
In addition, the sweeping changes in media are largely being followed, rather than led, leaving investors with limited choice in terms of investment in media companies or any of the innovative changes in this exciting sector.
There are only two locally-listed media companies. One is Naspers – owner of traditional media such as the newspapers Beeld, City Press and Daily Sun; magazines (including You and finweek), and, more importantly, significant exposure to social media companies like e-commerce and the China-based Tencent. The other is Caxton, a traditional media publishing company that owns community newspapers as well as printing and packaging businesses.
Both have historically been good investments. Caxton, up 22% over the past year, remains a traditional print media play with the share price largely reflecting the value of its assets. It has a price-to-earnings ratio (P/E) of just over 15.
Naspers is the only share on offer that reflects the changing media landscape due to its investments in pay TV, social media and e-commerce and its global diversification. Its price increase of around 60% over the past year reflects this, although its P/E of over 100 may scare risk-averse investors.
Time to change the channel
Media companies are also, due to the rapidly changing environment, subject to volatility. Bloomberg recently quoted Sanford C Bernstein analyst Todd Juenger saying analysts need to change the way they think about valuing media companies.
He was referring specifically to the US television industry, which has experienced a decline in pay subscription and advertising. Media companies have to continuously evolve if they want to keep attracting investment.
Major US companies, including Viacom and Disney, have been under severe price pressure – analysts suggest their revenue stream formulae may no longer be appropriate and, as Juenger says, the “US television industry is entering a period of prolonged structural decline”.
This is can be likened to the position the print industry was in a decade ago. Print companies have been in slow decline as circulation and advertising revenues drop. Those companies that have read the trends and evolved, however, continue to flourish.
For investors, the trick is to identify companies that are best able to evolve and to identify trends that are changing the way we view media companies, and adjust accordingly.
Local investors wishing to have media in their portfolios need to change their perceptions of media companies and see them as content providers, content platforms and distributors of technology.
Only a few companies in South Africa have managed to position themselves in this way, but analysts are in general agreement that one of those companies, Naspers, is accessible to local investors.
This article originally appeared in the 22 October 2015 edition of finweek. Buy and download the magazine here.
