Goldman Sachs reinstates DMGT at 'sell'
By Iain Gilbert
Date: Monday 16 Jul 2018
(Sharecast News) - Goldman Sachs reinstated its coverage of Daily Mail and General Trust at 'sell' with a 674p price target on Monday, saying the recent rally had overlooked the business' skew to structural and cyclical headwinds.
Goldman Sachs said that while DMGT had outperformed the media sector by roughly 25% so far this year despite a weaker than expected performance in DMG Media, the business remained "highly skewed" to UK macro trends.
It said that DMGT's property information division was still driving negative earnings revisions and while GS welcomed management's recent actions to simplify the group's portfolio, via disposals in DMG Information and its stake in ZPG, the firm remained cautious given that The Daily Mail and Property Information still made up almost 60% of revenue.
Goldman Sachs also highlighted risks to DMGT's FY19-21 operating profit estimates for RMS given the company's predilection to follow a more modular roll-out approach.
"While DMGT clearly holds the leading market position in the segment, our conversations with industry participants suggest that competition has increased as technological barriers to entry have fallen," Goldman Sachs said.
The broker said the company-compiled consensus, which currently forecasts a 22% improvement in operating profit in FY19, may be "too optimistic".
GS said that DMGT was a "compelling candidate" for corporate simplification and that any reshaping of the existing business to improve growth and returns would likely see the broker become "more positive" on the stock.
"However, our assessment of progress to date is less encouraging, with the sale of higher-margin businesses in DMG Information and press reports of potential acquisitions within print and digital media."
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