Exane picks WPP and cuts DMGT as media set to outperform in 2017

After a weak 2016, Exane BNP Paribas predicted the media sector will outperform the wider market in 2017, though downgraded Daily Mail & General Trust due to "significant operational uncertainty".

Exane said it expected media will outperform as the sector's relative p/e premium having shrunk from around 20% to nearer 10%, an improving cyclical outlook and continued appealing structural growth for the sector, driven by EPS delivery and high returns.

Media cyclical should benefit from improving macroeconomic prospects, analysts wrote, noting PMI data had suggested accelerating advertising growth in 2017, with North America, Europe and the UK stronger, but the picture in Emerging Market "more mixed".

Due to the sector's diversity, Exane espouses a stock-picking approach, selecting media bellwether WPP as the prime London stock for those wanting gain exposure to macro momentum, adding that structural fears that had weighed on its and French rival Publicis' valuation multiples were "overdone" and now provided upside.

Analysts expect RELX and Informa to "continue to deliver healthy defensive growth, with upside from RELX's risk solutions and Informa's exhibitions arm and integration of its Penton acquisition. Informa was upgraded to 'outperform' in November.

In light of its "pricing power and innovation", Rightmove was kept on an 'outperform' rating with its target price upped 4% to 47p even though short and long-term growth expectations are high.

DMGT was moved to 'avoid' and its price target cut 5% to 720p as analysts see limited upside its M&A strategy and its valuation respective to peers is "unattractive" due to relative risk profiles.

"We currently stand circa3% below FY18 EPS consensus but see significant operational uncertainty at RMS and DMG media, leaving our forecasts exposed to further negative revisions.

Although Pearson looked "cheap" it was kept on an 'avoid' rating on valuation grounds, while "2018 guidance looks out of reach as pressure on US higher education are likely to continue".