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Key points
- Traditional ASX media shares could be among the winners this reporting season, according to UBS
- The broker identified four tailwinds that could bolster earnings in the sector
- All traditional ASX media shares under UBS' coverage are rated as "buy"
The reporting season is about to kick off and a leading broker reckons that traditional ASX media shares could fare well this month.
This is because the sector is enjoying four tailwinds, according to UBS. These factors could boost their earnings when they hand in their results in a few weeks.
ASX media shares that are rated "buy"
The broker's bullish view is reflected in its "buy" recommendation for all the traditional ASX media shares under its coverage.
These include the HT&E Ltd (ASX: HT1) share price, Nine Entertainment Co Holdings Ltd (ASX: NEC) share price, News Corporation (ASX: NWS) share price, Seven West Media Ltd (ASX: SWM) share price and Southern Cross Media Group Ltd (ASX: SXL) share price.
"In traditional media, our focus will be on the 2H outlook, which may provide evidence on the sustainability of the post-COVID rebound in FTA ad spend," said UBS.
"[Although] in radio we believe any potential trajectory towards pre-COVID levels may continue to be delayed given its advertisers appear to be more impacted by COVID-19 (e.g. local direct advertising, retail)."
Earnings tailwinds
The strength in the combined TV ad market, particularly in the first half, is one of the tailwinds that UBS has identified.
Another is the deal that traditional Australian media companies have struck with Facebook, now Meta Platforms Inc (NASDAQ: FB), as well as Google, which is owned by Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG).
The deal will see these online giants pay content creators for their news stories. Nine Entertainment stands to get around $30 million to $40 million added to its earnings before interest, tax, depreciation and amortisation (EBITDA).
Other growth drivers for ASX media shares
Revenue growth in the digital assets of these ASX shares is the third driver highlighted by UBS.
The broker also points to the balance sheet repair that was undertaken by the sector through asset sales and capital raises. This will allow the sector to resume paying dividends, undertake capital returns and make acquisitions.
The only negative trend that could weigh on the sector is rising costs due to cyclical factors and the loss of the government's COVID-19 support payments.
The other good news is that rising interest rates and inflation are less likely to negatively impact the group compared to their online peers, such as Carsales.Com Ltd (ASX: CAR) and SEEK Limited (ASX: SEK).
