The Zee News (ZNL) stock has returned close to 38% over the last one month and >33% since our previous update in March 2009.
The sharp up-move in the stock can likely be attributed to the >25% increase in the broader indices over the past one month, in addition to the opportunity that ZNL’s valuations were offering a month ago.
We had outlined in earlier that we see opportunity in regional media’s relative resilience v/s the more saturated and vulnerable national markets.
Strong franchises (ZNL&JPL) that enjoy strong positioning and displayed reasonable financial discipline have been our preferred exposures, with ZNL being the only rated BUY in the sector.
At valuations of 16x FY10E EPS and 9x EBITDA, we however opine most of ZNL’s strong prospects (28% revenue and EPS CAGR over FY08-10E) are in the price.
We thus move the stock rating to an ACCUMULATE; price target remains unchanged at Rs.41.
We will await more favorable risk-reward to turn more positive on the stock in the near term. We nevertheless point out that ZNL remains amongst the few names that will see a decent growth momentum in the media broadcast space and compares favorably to the larger Hindi GEC play-ZEEL.
We also believe business fundamentals for the broader sector remain challenging and expect advertising revenues for most players to contract over the medium term, also new investments and elevated competition will weigh on the cost structures.
Retain our cautious outlook on the sector; expected weak Q4 numbers will likely lead to a re-focus on medium term business outlook and financials.