Fairfax rally leads upbeat media outlook

THE media sector's annus horribilis appears to be easing in time for Christmas, with Fairfax Media leading a rally on Thursday.

Brokers finally found something to like in the embattled industry.

Shares in Fairfax, the owner of The Age and The Sydney Morning Herald, rose more than 11 per cent to 54¢, after Commonwealth Bank Equities analysts upgraded their valuation of the stock from 43¢ to 59¢. The broker raised its earnings assumptions for Fairfax's real estate classifieds. "The key change in our assumption is around the strength of Domain's print margins, which we estimate at 30 per cent versus its digital margins at 35 per cent," said CommBank media analyst Alice Bennett.

APN shares also posted a double-digit rise - up 10 per cent to 31.5¢ - while Seven West Media rose 3 per cent. Ten has also managed to recover most of the ground lost after its recent capital raising priced at 20¢ a share, closing at 26¢.

"There does seem to be a solid improvement in sentiment towards companies like Fairfax," said Allan Gray portfolio manager Simon Mawhinney. The investment firm owns substantial holdings in Fairfax and APN. Mr Mawhinney was cautious about predicting a turnaround in the sector, with many stocks still trading significantly below where they started the year and with no signs of recovery in advertising.

"In terms of the advertising market it's not clear if we've found the bottom," he said. "It is incredibly difficult to make a prediction like that."

Commonwealth Bank said News Corp, Fairfax, Seven West Media and Southern Cross Media remained its preferred stocks in the sector, with the struggling Ten network its least preferred.