Bit late with this — a piece of forecasting from Deutsche Bank that followed last week’s Johnston Press results for 1H08. The note in question summarises JP’s advertising revenues so far this year:
H1 ad revs (UK print) dropped 11%, with June down 17%. The first 7 weeks of H2 are down around 23%.
This leads Deutsche Bank to forecast that Johnston Press will face YOY ad revenue declines of 25% for the rest of the year.
Because declines were shallower during the first half, Deutsche Bank predicts that for 2008 as a whole, Johnston Press’s ad revenues will end up down 18% YOY.
A couple of things need to be said at this point.
The first is that these 2H expectations currently pivot on a ropey bit of data.
That 23% decline for Johnston Press during the traditionally thin summer months isn’t a reliable guide to what will happen between September and December.
But it is worrying. At the moment, the newspaper advertising business — like the wider economy — sits at a point of inflection. The industry has its Alastair Darling types (forecasting much worse to come). And it has its Caroline Flint types (she’s the housing minister who is a bit naive about telephoto lenses and has been a key proponent of Gordon Bown’s “Don’t panic” line).
The analysts at Deutsche Bank — like most of their peers — seem to be lining up with Ms. Flint. The bank’s forecast for Johnston Press revenues during 2009 makes this plain:
We continue to assume a 7% decline in advertising revenues for 2009, but this is from the new lower 2008 base.
To say the least, this prediction looks rosy. It underlines the fact that analysts’ forecasts tend to lag behind developments in the real world during a downturn.
If 25% ad revenues declines become the reality at Johnston Press in 2H08, some revisions will be required in those 2009 forecasts.
The reckoning will have an unpleasant effect on share prices. And that, in turn, could return us to the dark days of early summer, when valuations for Trinity and Johnston Press rode so low that wild talk became commonplace.
NB: New-ish (and non-financial) readers might be wondering why I keep on referring to Johnston Press and Trinity Mirror in posts like these.
The reason is simple: these companies are part of a small band of media companies whose quoted status means they have to disclose large amounts of financial information. To some extent, this means that they have become proxies for the entire news-generating sector.
But it’s also worth remembering that both TM and JP are heavily exposed to the market’s nastiest risks: they own lots of local newspapers, they’re heavily reliant upon classified advertising and (in the case of TM), they are part of a red-top market that’s declining relatively rapidly in circulation terms.
In other words: what TM and JP offer is a guide to the leading and bleeding edge of recession. Their revenues streams started falling first, and it’s likely they will fall furthest.
If you work in B2B publishing, or even consumer magazines, JP and TM will give you an idea of where the downturn is heading. Almost certainly, however, the prognosis for your business won’t be quite so dark. Given the persistent hysteria that surrounds the media sector, this is worth remembering.