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September 18, 2008

Meltdown implications: Eerie silence hangs over media stocks

By Peter Kirwan MM blog

You’re probably assuming that the worst has happened to the share prices of media companies this week.

Not quite. Much of the carnage has been confined to financial stocks. By contrast, the broad FTSE-100 index of Britain’s largest quoted companies fell by 7% between Monday morning and Wednesday evening.

That’s a lot by normal standards. But it’s not quite a repeat of 1929. And it’s nothing like the hammering taken by HBOS, Barclays and HSBC.

Predictably, however, the media sector fared worse than most. Trinity Mirror’s shares opened at 114p on Monday morning. Last night, they closed at 89p.

Trinity racked up big declines on Monday and Tuesday. Yesterday, the company’s share price seemed to stabilize. This morning, it’s up slightly. Overall, the company’s share price has declined by around 25% since the start of the week.

Johnston Press opened at 45p on Monday morning and fell to 42p at the close. On Tuesday, it recovered to 48p. Yesterday, it declined to 37p. This morning, JP is also up slightly. Overall: a decline of some 17%.

Two things need to be said about these numbers. The first is that stock market has been behaving erratically, to say the least. A huge (and bankrupt) Lehman Brothers sold millions of shares into the market earlier this week, skewing prices all over the place.

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The second is a reminder that Trinity and Johnston Press remain two of the sector’s most exposed companies. Despite this, their share prices have yet to go below the lows recorded earlier this summer when short selling them was in vogue.

For a slightly more upbeat view, take a look at the shares of United Business Media, the UK’s largest quoted B2B publisher. The company’s shares fell heavily on Monday before stabilizing on Tuesday afternoon and today.

Overall decline? From 555p to 515p, UBM fell by around 7% — exactly in line with the FTSE-100.

More generally, investors and analysts are still a long way from figuring out the implications of this week’s crash.

Even before this week’s events, the news was bad. On Monday, Newsquest reported that classified ad revenues fell by a whopping 30% during August. Yesterday’s unemployment figures showed the fastest increase in benefit claimants since 1992.

On top of this, the savage forced consolidation of the banking sector means that corporate borrowing will become even more expensive. Consumers will lose even more confidence. And marketers will cut ad budgets further.

How much? No-one knows. But when the dust settles, it makes sense to anticipate another round of speculation about debt levels at places like Johnston Press and Trinity Mirror.

This time, analysts will have to factor the fallout from a remodelled banking system into the equation. It’s hard to see anything positive emerging from that.

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