Trump era means 'capital-destroying uncertainty' for media shares

Trump era means 'capital-destroying uncertainty' for media shares

A leading Wall Street firm has downgraded financial prospects for all the big advertising holding companies because Donald Trump's administration heralds a "riskier political environment" and "capital-destroying uncertainty".

Pivotal Research, which covers much of the media sector, cut its target price for shares in WPP, Omnicom, Publicis Groupe and Interpublic.

Brian Wieser, an analyst at Pivotal, said in a research note he saw "minor changes in earnings expectations and more significant changes to costs of capital".

The research went on: "Subjectively, we think that valuations of companies we cover do not appropriately reflect that the environment for stocks and companies is riskier now than was the case several months ago."

Trump's relationship with the media industry has worsened since his election amid a torrent of wild allegations about his links to Russia, attacking news outlets CNN, the New York Times and BuzzFeed, among others.

Trump has also used his Twitter feed to criticise car, airline and drug companies, particularly for outsourcing work outside America.

Pivotal said the prospect of tax cuts and deregulation could be a positive, but the overall picture was worse.

"Political risks are higher now than three months ago, which should lead to capital-destroying uncertainty, higher costs of capital and lower valuations," Pivotal said.

"We recognize that we are not political analysts, and neither are we market strategists. However, in a period where uncertainties are so significant, price targets for specific stocks need to be rooted in a view about how political and equity environments will evolve."

Stock markets have risen sharply in the two months since Trump's election.

Pivotal cut its target price for WPP's stock by £2.50 to £18.20, Omnicom by $7 to $79, Publicis Groupe by €2 to 73 and Interpublic by $2 to $26.

Pivotal also downgraded prospects for 13 other media, advertising and technology companies, including Facebook, Twitter and Google's owner Alphabet.

Financial analysts frequently revise their target prices for individual shares, depending on a company's performance, but such a wide-ranging downgrade across several sectors is more unusual.


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