Newspaper stocks have been facing challenging times in the last two years with increasing newsprint costs, lower advertisement revenues and disruption in reading patterns. In the past 12 months, There has been substantial correction in the stock prices of Key listed players and valuations have also nose-dived.
Negative returns across the past 12 months
Lower growth and higher newsprint costs led to a decline
In HIFY19, newsprint prices shot up 30% YoY and remained above the Rs 45,000 per ton mark impacting the EBITDA Margins margins. In the first 3 quarters of FY19 – the newsprint prices have remained 20% higher YoY compared to FY18. The newspaper companies faced a double whammy of declining revenues and rising costs that hit profitability. Demonetization and GST impacted advertisement revenue growth in the past few years. The real estate sector is key for ad growth, the slowdown in the real estate sector has also aided in impacting ad growth.
EBITDA Margins trending downwards
Elections & tariff hikes–a key to revival?
General Elections in India have always been linked with higher media spending. Political ad spending forms a key part of the election budget and this can give a bump up to the profitability of and advertising revenues during the next two quarters. According to a CRISIL report, Advertising revenues had risen approximately 7% during the 2014 general elections. The recent management commentary from these companies has also been upbeat and has indicated 7-8% ad revenue growth. To add to this The Bureau of Outreach and Communication recently announced a 25 percent increase in card rates on government advertisements
Management commentary remains upbeat on Growth Outlook
How they fared in the past – Proof of the Pudding
We have tried to analyze what impact stock prices have had before and after election and also conducted a detailed technical study based on the carts. Based on the criteria, we have sorted DB Corp, Jagran Prakashan, HT Media, Hindustan Media Ventures and Pressman Advertising.
The above set of stocks has tended to be on the declining front before the elections and have undergone corrections. As per the relative performance chart, the bottom in these stocks have occurred just before election which have always been followed up with a reversal during the Election times clocking gains of more than 95% in a short span of time. Interestingly, some of the stock have continued their upside momentum towards the highest resistance levels –(Discussed in detail in below section).
D B CORP
Dainik Bhaskar on the longer timeframe charts witnessed a break of double top pattern in early 2018 with a divergence in RSI and has continued its decline towards the completion of 100% of the range in October 2018. The Stock thereafter has been consolidating with momentum indicators on deep oversold zone. DB Corp in the previous instance had witnessed an early rise way before the election year and had just above 100% return. The Stock currently has dropped towards the lows of 2012 and has been consolidating for a while now with volume action more than its average of 5 months shows accumulation. Thus, the time, price action and momentum are in favor of low risk and stock can be seen gaining in the upcoming few months.
Jagran Prakashan has bottomed just before the LokSabha elections twice in the previous few occasions and currently has dropped towards support levels. The supports confluence of the long term trendline coincides with the 88.6% retracement of the prior advance and 61.8% retracement from the lows of 2008 end. Momentum indicators have been sideways making way for a reversal as the damage in price levels is larger than the damage in momentum. Hence, this is another counter that can witness strong price reversal is in place.
HT Media witnessed range contraction that lasted for more than 9 years after a deep decline in 2008. Momentum indicators itself showed that the resistance at 60 levels was quite strong and any investments made should have been exited. The recent decline from the 60 levels led to a break below the contracting range with momentum readings moving below 40 towards the oversold area. HT Media has now dropped towards its lower levels of early 2009 as marked in the charts with completion of ABC 100% pattern. The Stock has been consolidating here for past 4 months without continuing lower. Long term players will find this stock at a very reasonably discount and at support, bounce back in price is poised towards the low of the previous range at around 70 levels.
HINDUSTAN MEDIA VENTURES LTD
HMVL has awarded around 100% returns timed the previous consolidation witnessed just before the elections. Price action and momentum indicators witnessed a range shift to higher levels and sustained with couple of months consolidation. Backed by the pressure in Benchmark indices, Stock has seen multi month decline to drop towards the same junction of 2012 to 2014 consolidation lows. The decline has been straight to the supports completing the 100% range as shown on the charts at the value area. Technically, trend is followed with a corrective pattern and thus we can witness at least minimal correction of 38.2% retracement bounce back in this counter.
Pressman Advertising is one stock in the whole set that has not lost its ground and is seen restricted with some gains. The small candle formation at the supports of 78.6% retracement of the advance witnessed from the rally of 2012. Thus the price damage as compared to momentum is quite minimal and bouncing higher above the current consolidation and 61.8% retracement levels; Pressman is expected to start the next leg of up rise.