Kepler Cheuvreux Adjusts European Media Sector Ratings Amid Multi-Year Valuation Discounts

As the European media sector enters 2026, it does so with the backdrop of a difficult previous year, wherein it was the poorest performing segment within the Stoxx Europe 600 index. According to Conor O'Shea, an analyst at Kepler Cheuvreux, this underperformance stemmed predominantly from valuation reductions rather than meaningful downgrades in earnings forecasts. Such a dynamic has preserved the sector's fundamental outlook while pushing its valuation spread to multi-year lows relative to other sectors.

O'Shea attributes this sell-off primarily to investor concerns regarding vulnerabilities posed by generative artificial intelligence technologies. Despite heightened focus on potential disruptions from AI, earnings estimates have remained largely stable, suggesting that price adjustments were driven more by sentiment than by financial deterioration. He points out that the media sector currently exhibits the second-largest discount when comparing forward price-to-earnings multiples to the median values seen over the past decade, a gap only surpassed by the food sector.

In response to these valuation movements, Kepler Cheuvreux has updated its sector ratings and preferences. Notably, Pearson and ProSiebenSat1 have been upgraded from Reduce to Hold, reflecting a convergence between their share prices and target valuations following prior underperformance. Additionally, target prices have been enhanced for Canal+, Havas, ITV, Publicis, and RTL Group, suggesting an improved risk-reward balance after last year's price declines.

The analyst also added RELX to the Most Preferred list, emphasizing that its recent valuation drop belies its position as a potential beneficiary rather than a casualty of generative AI advancements. Similarly, MTG Group has joined the Most Preferred cohort, characterized as an inexpensive and low-risk opportunity, supplanting JCDecaux and Springer Nature.

Conversely, Pearson and UMG have been removed from the Least Preferred list, while M6 and Ubisoft were newly included. M6 attracts particular caution due to its concentrated exposure to a faltering French television advertising market, a substantial financial commitment for FIFA World Cup broadcasting rights, and a valuation premium relative to peer TF1.

Looking forward, Kepler anticipates that 2026 will bring cyclical support to European media firms, buoyed by a combination of high-profile events such as the FIFA World Cup, U.S. mid-term elections, and the Winter Olympics in Cortina. However, caution remains warranted as pricing pressures in traditional linear TV advertising, especially within France and the United Kingdom, may partially counterbalance these positives. This outlook reinforces a preference for companies demonstrating robust market share growth and resilient business models, exemplified by Publicis.

Overall, despite recent headwinds centered on valuation and sector-specific risks, selective repositioning within the media landscape underpins a cautiously optimistic 2026 outlook.