M6: ‘2008 tough, 2009 better’

chris

French commercial network M6 is likely to have a tough 2008, says a March 10 report. But 2009 will be better, perhaps helped by a major internet acquisition.

M6 is a popular French network, with an audience share of about 11.5%, but the advertising downturn is not doing it any favours. A report from investment bankers Morgan Stanley praises the station, saying it is “one of the best-managed European broadcasters” and is superior in terms of structure and valuation to giant network TF1. “However, we fear these issues are insufficient for a market that is focused on the short term,” says the bank’s report, and has marked the broadcaster down from “overweight” to “equal weight for the time being” in its advice to investors.

The bank says this current 12 months is likely to be a transition year for M6. M6 also owns W9, the most popular of the new DTT channels, as well as a variety of diversification activities including home shopping and audiovisual rights activities. M6 has a free float of 46%, while RTL Group owns 48.6%.

The bank’s report says that 2008 and 2009 earnings may be diluted by the internet acquisition that management recently mentioned is likely to be announced in the next weeks. “Although we welcome all efforts by the consumer media stocks to embrace new technologies – without such moves, we believe they have very limited future options – the fact remains that M&A in the online space tends to be conducted at relatively high multiples.”

“In M6’ defense,” adds Morgan Stanley, “We should point out that the acquisition of Mistergooddeal in later 2005 was done on good financial terms and the deal has been clearly enhancing to fair value. Management has indicated that the proposed deal could also be in the same area of ‘distance shopping’, so a track record is there.”