There are plenty of vocal Wall Street soothsayers and media ecologist clairvoyants out there, presenting their forecasts on what your business climate will likely be like for the next 12 months.
The latest prognostication comes from Noble Capital Markets, which has a good report card for radio while giving broadcast TV a rotten egg.
Noble begins its just-released Media Sector Review with a look at broadcast TV.
It isn’t pretty.
“It has been a painfully quiet summer for the broadcast television group, which underperformed the general market and most media segments,” Noble says. “In the latest quarter, the Noble TV Broadcast Index declined 5.7%, versus a 4.0% advance by the S&P 500 and modest gains by publishers and radio broadcasters.”
The year-to-date performance is upside down as well, Noble laments, with the TV stocks down 8.3% versus a gain by the S&P 500 of 12.5%.
Even so, Noble says, “We believe that the fundamentals of the industry have been relatively stable to favorable.”
So, what gives for broadcast TV?
“The weak stock performance, in our view, is largely a function of the lack of M&A activity, which has been muted as companies await the new ownership caps and in-market rules from the FCC,” Noble says. “We believe that the TV stocks will have a better performance in the fourth quarter, especially if history is a guide.”
That’s because, Noble notes, TV industry stocks perform best in the fourth quarter in a year prior to the Olympics, and an election year. In addition, Noble says, the stock performance may also be skewed upward due to the expected FCC relaxation of ownership rules, expected by year end.
“As such, we are constructive on the TV stocks and encourage investors to buy near current levels,” Noble advises.
BIG CHANGES FOR CUMULUS?
The radio stocks tracked by Noble largely under-performed the general market in the third quarter, but were among the top performers in the media sector.
The Noble Radio stock index was up 2.7% in the third quarter, compared to a 4% gain for the S&P 500.
“We believe that the gain in radio stocks was largely due to an increase in deal volume excluding the mega mergers announced earlier in the year, particularly Entercom and CBS Radio,” Noble says.
There were an estimated $124 million in deals in the quarter, up from $116 million in the fourth quarter 2016.
As has been noted by RBR+TVBR, a large portion of the deal volume reflected sales of Entercom stations, in an effort to comply with ownership rules to complete the CBS Radio merger.
But, there are more deals to come, and Noble eagerly awaits them.
“We believe that M&A activity will continue to be strong in radio,” it notes.
How that activity transpires could be the subject of some debate.
In particular, we believe that the prospect of a pre-packaged bankruptcy at Cumulus Media could heighten the potential M&A activity as that company possibly realigns its station portfolio following the potential move. Consequently, we believe that there should be some follow through momentum in the Radio stocks in coming quarters.
Cumulus shares have hovered at or near 33 cents per share in recent trading sessions, and the company has scheduled an appeal with Nasdaq in a last-ditch effort to thwart a delisting for failing to keep its shares at a minimum trading value. Cumulus has also failed to comply with the exchange’s minimum stockholders’ equity requirement.
