Investing.com - JPMorgan has taken a fresh look at the European Media sector in the wake of the bank’s economists turning more positive on the region’s macro outlook.
JPMorgan’s economists see the overall macro situation slowing in the U.S., but improving in Europe - moving from “contraction” to “recovery”, an environment in which investors should typically favor value, low quality, high risk, small caps and rising momentum to maximize returns.
Against this background, JPMorgan favors domestic European value, and is more wary of U.S. exposure.
“Contraction winners, quality names that are easy to love, may struggle to outperform unless they have specific catalysts or scope for upgrades. Recovery winners are harder to own but are cheap & improving earnings momentum could provide a catalyst for a re-rating,” said analysts at JPMorgan, in a note dated July 11.
The bank has upgraded its stance on ProSiebenSat1 Media (OTC:PBSFY) to ‘overweight’ from ‘neutral’, saying advertising has stabilized but remains depressed versus other markets, creating the possibility of a stronger-than-expected recovery as macro improves.
Disposals in the second-half of the year could crystallize value, reduce leverage and pave the way for a MFE bid/merger, unlocking synergies & scale benefits.
MFE (LON:0NE1), also known as Mediaforeurope, has also been upgraded to ‘overweight’ from ‘neutral’.
JPMorgan called Vivendi (OTC:VIVHY), rated ‘overweight’, its best idea for the second half of the year, placing it on Positive Catalyst Watch into the French media giant’s interim results on July 25.
It could then confirm the Vivendi split, and potentially pull forward its timing to the fourth quarter.
“We believe the split will close the current SOTP’s [sum of the parts] discount from around 40% to around 10%, driving 50% upside,” said JPMorgan.
JPMorgan also has ‘overweight’ ratings on ITV (LON:ITV), Pearson (LON:PSON), Relx (LON:REL) and Universal Music Group (AS:UMG).
On the flip side, JPMorgan downgraded its stance on Publicis (EPA:PUBP) to ‘neutral’ from ‘overweight’.
The U.S. bank continues to believe in the Publicis story - in its differentiated mix and model, and its management team, but questions whether you need to own an agency into a slowing U.S. macro situation.
"As we move into the recovery phase of the investment cycle, Publicis’ relative quality may be less of a support, with value the key driver of performance,” JPMorgan said.
It also downgraded Wolters Kluwer (AS:WLSNc) to ‘neutral’ from ‘overweight’, saying the publishing company is a very high-quality compounder with exceptional leadership with a long track record of value creation.
However, it has also performed extremely well and JPMorgan’s price target now only offers around 5% upside.
Additionally, It may not have the qualities needed to outperform during the recovery phase of the investment cycle.