Investment bank Goldman Sachs JBWere has downgraded most of Australia’s media companies after its economics team cut its growth forecasts for the Australian economy for this year and next.

The downgrades in growth were largely due to “slowing growth in private consumption” and “peaking corporate profit margins” so there are also cuts to growth forecasts for the advertising markets.

No growth at all is forecast for 2009 for TV and radio, while marginal growth is seen for newspapers and still solid, but slowing growth is forecast for online.

The investment bank told clients today that:

Advertising is a corporate discretionary item. It is closely correlated with:

  1. corporate profitability; and
  2. capex and capex intentions. However, it is also worth pointing out that corporate advertisers are also intimately concerned with broader trends in consumer spending (i.e. private consumption, consumer confidence).

We have lowered our growth forecasts for the Australian advertising market as a result of our more cautious economic outlook. We believe FY09 will be a cyclical low point for ad market growth.

Goldman said it saw the total ad market this year growing at 7.6%; slowing to 3.2% next year and then bouncing back in 2010 to 6.2%. The breakdown for growth of each medium market is below:

  • Metro newspapers: FY08 +2.0%; FY09 0.0%; FY10 +3.0%.
  • Regional newspapers: FY08 +4.0%; FY09 +0.5%; FY10 +4.0%.
  • Metro FTA TV: FY08 +7.0%; FY09 +0.0%; FY10 +4.0%.
  • Online: FY08 +30.1%; FY09 +22.1%; FY10 +20.0%.
  • Radio: FY08 +5.5%; FY09 0.0%; FY10 +4.0%.

Goldman downgraded its earnings estimates for the majority of media stocks under its coverage. Meanwhile, Merrill Lynch also cut its growth forecasts today and this will no doubt lead to similar cuts for media and other stocks later this week.

Peter Fray

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