With Australia’s ad market spend hitting record heights last year, Goldman Sachs has bucked the bullish trend of its broking peers and downgraded Seven West Media Ltd (ASX: SWM) to Sell, from Neutral, citing concerns over structural declines in the TV ad market.
The broker, which kept its buy recommendation on Seven competitor Nine Entertainment (ASX: NEC), expects a “generational” shift away from free-to-air TV and broadcast video-on-demand (BVOD), towards digital video like Youtube, and subscription-based video-on-demand (SVOD) services such as Netflix or Amazon Prime.
Goldman's kept its Buy rating on Nine due to having better data on its customers than Seven and a more diversified portfolio of assets - 87% of Seven’s revenues derive from TV.
The broker also cited Nine’s ownership of SVOD service Stan as a factor - at present, Seven does not own any SVOD service, and is unlikely to start one, given the intense competition in the sector, the broker noted.
The ratings change is a big break from the other four major brokers covering Seven, all of which have strong Buy recommendations on the stock, with average upside potential of nearly 40%.
Ord Minnett, which recently upgraded its Seven target price to $0.75, expects the TV ad market to remain strong this year, with the broadcaster’s ad bookings set to outpace in the second half of FY22.
Ord Minnett also cited strong growth in Seven’s BVOD segment, suggesting its transformation away from linear TV towards digital is progressing well.
Last month Seven reported a 27% boost to first-half FY22 revenue, to $820m, and a 48% jump in net profit after tax (NPAT) in the same period, to $129m.
A number of the brokers cited the growth of 7Plus - the company’s BVOD service - as a positive in the first half. Revenue from 7Plus increased by 90% during the period.
The rise and fall of Seven West Media: A three month share price snapshot.
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