The ETF MDA (Lyxor) replicates the Stoxx Europe 600 Media (SXRR) index, which is composed of the main European media stocks.
This index is rather narrow since it has only 26 holdings. It is essentially composed of market capitalizations between €5 and 30 bn. What is most interesting is the wide variety of sub-sectors: WPP and Publicis are advertisers in full digital transformation, ITV or SKY are broadcasters, therefore content distributors who increasingly want to ensure their own production to face US giants like Netflix. This index also includes companies such as RELX Group (Reed Elsevier) or Wolters Kluwer, which are publishers of specialized information and content (scientific, legal, etc.). The common point to all these sectors is that they are currently experiencing digital transformation to face US web giants.
The current multiples are relatively reasonable at about 15x the 2017 EPS but earnings growth remains uncertain. It should be noted that more than half of the index is represented by English companies, which adds an additional risk to the currency (GBP is in free fall versus Euro at currently 1.18) as well as to the UK specific risk in the case of "hard Brexit".
The volatility of the sector is not particularly high, the media being considered by the market as a growth sector (reinforced with the digital), more than a cyclical sector that it is also. The margins and cash flows can be significant, and the growth is also made by acquisitions, which makes the media an attractive sector for the long term. The digital transition has been accelerated for a large number of players, bringing together the business models of large IT services companies such as Accenture or Cap Gemini or US technology giants such as Netflix for certain broadcasters (eg ITV). Medium-term prospects are attractive.
The expenses of this ETF are reasonable at 0.3%. It has AUM of 5 €M.
The index declined by 5.9% in 2016 and dropped by 4.8% since the beginning of 2017, after giving back all its gains in the last 3 months due to lower-than-expected growth and higher competitive intensity as the market moves to the mobile. WPP (1st capitalization and 12% of the index) has just posted a second profit warning in a row while consumer groups such as Unilever, Nestlé and Procter & Gamble have chosen to reduce their advertising spending on products such as laundry, drinks and food to cope with the weak growth. The advertising group suffered a particularly sharp slowdown in its US business, where its sales, on a like-for-like basis, decreased by 2.2% in H117.
After a difficult 2016, the cyclical difficulties of advertisers leave doubt about more structural problems, such as the intensity of competition.
