The professional publishing sector is still among the most attractive in the overall European Internet and media sector, according to a new 80-page research report by Lehman Brothers analyst Colin Tennant and his team. The report compares publishers such as Thomson Reuters (NASDAQ: TRIN), Reed Elsevier (NYSE: RUK), Pearson (NYSE: PSO) and Wolters Kluwer. The points raised in the exec summary are also valid for U.S. B2B companies as well.
Some relevant excerpts:
“Defensive is still attractive: First and foremost the publishers are defensive, and if the economic outlook continues to deteriorate, investor appetite for the more cyclical end of the sector is likely to be limited. With the one exception of Pearson, there is almost no exposure to the consumer, which, given that the current shape of the economic downturn, should insulate the professional publishers from its worst affects.
The structural concerns that have adversely affected the traditional media stocks are largely absent for the professional publishers, with digital technology having improved the revenue and margin opportunity in most cases. Exposure to cost inflation is low. The migration of most professional publishing products online over the last few years has largely eliminated exposure to raw materials such as paper, as well as shipping costs. Staffing is the biggest single component of cost for all of the companies in the group under review, and the development of offshore capacity in recent years should help the professional publishers to keep wage inflation under control.
We believe Thomson Reuters and Reed Elsevier have the best long-term growth and margin prospects of the group under review. The Markets division of Thomson Reuters is more cyclical, but we believe that we have taken this into account in our forecasts, potentially creating upside risk….We believe Pearson will continue to outperform the wider media sector for as long as the economy is deteriorating, but will not be able to maintain a premium rating in the event of a market recovery.”