Fairfax rally leads upbeat media outlook

THE media sector's annus horribilis had a respite in time for Christmas, with Fairfax Media leading a rally on Thursday.

By InvestSMART · 14 Dec 2012

By InvestSMART ·
14 Dec 2012

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THE media sector's annus horribilis had a respite in time for Christmas, with Fairfax Media leading a rally on Thursday.

Brokers finally found something to like in the embattled industry.

However, a shock profit warning by regional newspaper player and radio station owner APN after the market closed on Thursday is likely to keep gains short-lived.

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.

Seven West Media rose 3 per cent. Ten 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. 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.

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Frequently Asked Questions about this Article…

What triggered the Fairfax Media shares rally reported in the article?

The article says Fairfax rallied after brokers upgraded their valuation for the stock. Commonwealth Bank Equities raised its valuation and boosted earnings assumptions for Fairfax’s real estate classifieds, which lifted investor sentiment and sent the shares higher.

How did Commonwealth Bank’s analysis of Domain margins affect Fairfax’s valuation?

According to the article, CommBank’s key change was its assumption about Domain’s classifieds margins. The broker estimated Domain’s print margins at around 30% versus digital margins at about 35%, and this stronger margin view helped justify higher earnings expectations for Fairfax.

Should everyday investors buy Fairfax shares after the recent rally?

The article notes rising sentiment but also highlights caution: a broker upgrade drove the rally, yet sector fundamentals remain uncertain. Analysts and portfolio managers warned advertising hasn’t clearly recovered and gains could be short‑lived, so the piece suggests investors weigh the upgrade against ongoing sector risks rather than treating the rally as a sure sign to buy.

What impact did APN’s profit warning have on the media sector outlook?

The article reports that APN, a regional newspaper and radio owner, issued a shock profit warning after the market closed. That warning is likely to temper the rally and could keep any gains in the media sector short‑lived, according to the coverage.

Which media stocks did Commonwealth Bank name as preferred in the sector?

Commonwealth Bank said News Corp, Fairfax, Seven West Media and Southern Cross Media remained its preferred stocks in the media sector, as noted in the article.

How did other major media companies fare during the rally?

The article mentions Seven West Media rose about 3% during the same session, and Ten recovered most of the ground it had lost after a recent capital raising. Overall, some individual stocks improved even though the sector’s advertising outlook remained uncertain.

Why are analysts cautious about predicting a full turnaround in the media sector?

Analysts and portfolio managers in the article were cautious because many media stocks were still trading well below where they started the year and there were no clear signs that advertising revenue had recovered. That uncertainty makes it hard to call a definitive sector turnaround.

What should investors watch next in the media sector according to the article?

The article suggests investors should monitor further broker updates and earnings guidance (including any more profit warnings like APN’s), trends in advertising revenue, and margin developments in classified businesses such as Domain—these factors will influence whether the recent positive sentiment is sustainable.