Tim Gosling in Warsaw -
It's usually the other way round, but media exposure has taken on a new meaning in Poland. The Polish public’s growing consumer confidence is putting the country’s media sector in the spotlight.
Media across much of Central Europe is suffering as international investors flee mounting losses, leaving local oligarchs and politicians to take over. Not so in Poland, where the sheer size of the market and a search for exposure to rising consumer spending is driving a mini-boom in the sector.
The six or so years since the 2008 crisis have seen international media groups that arrived in the region in the 1990s exiting neighbours such as the Czech Republic and Slovakia. Offering little financial attraction for potential investors, they have been replaced by powerful local figures keen to gain political influence, sparking fears over media freedom. However, the Polish market is a different beast. “Size matters,” states Tomasz Krukowski, who heads equity research in the region for Deutsche Bank. “The track record shows the strength of the Polish market relative to the rest of the region.”
The sale of Poland's largest private broadcaster TVN illustrates the point. A line of global giants including Time Warner, Century Fox and Discovery from the US, and Germany's Bauer and Axel Springer formed to purchase the 52.7% stake that was put up for grabs by local investment group ITI and France's Vivendi. The €884mn that the US’ Scripps Networks Interactive agreed to pay for the stake in March saw TVN valued well above European peers. Scripps suggests it's now preparing a buyout offer to scoop up the rest of the shares.
Hot on the heels of that long-awaited deal, Wirtualna Polska – operator of the country's top web portal WP.pl – confirmed it will carry out an IPO and list its shares on the Warsaw Stock Exchange (WSE) on May 8. Puls.TV – a pay TV network originally set up by Franciscan monks – also said it is preparing to list in Warsaw in the second half of the year.
Praying for cash
There are various forces driving the strategic sales and fund-raising efforts by Polish media companies.
In the case of WP.pl, it has been fighting onet.pl for internet supremacy for years. Having grabbed top spot late last year, Wirtualna Polska clearly feels some pressure to press home its advantage over its rival, in which TVN holds a sizable minority stake alongside Germany's Axel Springer. A chunk of the proceeds from the sale will be used to bulk up. “Competitors are breathing down our neck and we want to use the IPO money for acquisitions,” Wirtualna Polska's CEO Jacek Swiderski told a news conference in April. “We want to keep investing in e-commerce, which expands twice as fast as the internet advertising market.”
Meanwhile, Polish TV operators are chasing a window of opportunity since digitalisation to put pressure on the country's top two privately-owned rivals: Cyfrowy Polsat and TVN, which jointly hold a market share of about 50%. Puls TV runs two channels, directed mainly at Poland's large Catholic congregation, and has a 6% share of the market. “The smaller players are trying to grab market share in the free-to-air segment since digitalisation,” points out Deutsche Bank’s Krukowski. Poland switched off the last of its analogue transmissions in mid-2013. The Deutsche Bank analyst suspects that, “Puls TV needs cash for development in that context. It needs to invest in programming to take advantage.”
“The bourse is a tool and possibility to reach greater goals... Further dynamic development is our aim,” Puls TV CEO Dariusz Dabski said as he announced the plan to list in March. “The offer could equal tens of millions of zlotys rather than hundreds. If, however, there is suddenly a possibility of an interesting takeover, which will give us turbo power, it will be hundreds [of millions].”
Time to go?
Meanwhile, like ITI's sale of TVN, the listing of Wirtualna Polska is seen as a first step to an exit for its private equity shareholders. MCI Management says it will sell part of its holdings during the listing. “Now is very positive for tech-internet IPOs in Western Europe and the US, and I expect this trend to accelerate also on the Warsaw Stock Exchange,” MCI Management's Tomasz Czechowicz told bne Intellinews.
The company hopes to raise up to PLN100mn from the sale of newly issued shares, with a further 23.5% stake to be sold by the current owners. Although some fund managers claim it's too much, Wirtualna Polska is chasing PLN37 per share, which would value the company at over PLN1bn. That would give a nice return on investment; private equity fund Innova Capital bought WP.pl from Orange Polskie in 2014 for PLN383mn. Local fund MCI bought into the portal operator just afterwards, to the tune of PLN60mn.
Wlodzimierz Giller at PKO Bank Polski claims such exits are driven by specific conditions at the funds that are selling, rather than high demand from suitors. At the same time, he suggests it's not the peak time to cash out. “The ad market equals around 0.4% of GDP at the moment; it hit around 0.6% in 2006-07.” That said, he admits the market is “probably at the bottom of the cycle.”
Krukowski predicts Poland’s overall advertising market will continue growing at mid to high single digits over the medium term. “It's a bet on Polish consumption over the longer term,” he says.
Indeed, the likes of Scripps and its rivals interested in the acquisition of broadcaster TVN look to be happy to pay top dollar for the potential growth of Poland’s media market, with the Polish consumer expected to drive GDP growth over the medium term. “Consumers remain confident,” note analysts at Erste Bank, who forecast GDP growth of 3.4% in 2015, with domestic demand the main pillar of that growth as private consumption expands up to 4%. “We thus expect positive growth dynamics of private consumption, especially as labour market conditions keep improving.”
Giller is more circumspect, pointing out that at 5% growth per annum, the ad market's expansion is not too far ahead of GDP. However, that appears enough to drive positive sentiment for retail-facing companies, particularly in the internet segment. “The internet ad market is by far the fastest growing,” the PKO BP analyst points out. “It's around twice the speed of the traditional segment at 10%.” The TV advertising market grew by almost 6% to PLN3.8bn in 2014, according to the local Starlink media agency.
Big fish, small pond
Adding even more potential for the companies now pushing onto the Polish media market is there's a very limited pool of candidates that could follow. “I don’t think there's many more companies to come,” Krukowki sums up. “There are not many significant players.”
While 15 companies make up the WIG Media index, the four largest – which includes TVN, cinema operator Global City Holdings and Agora (publisher of newspaper Gazeta Wyborca) – account for around 95% of the weighting. Pay-TV network Cyfrowy Polsat constitutes over 50% on its own, mainly thanks to its purchase in 2013 of mobile operator Polsat. “International players would still like to enter Poland I think,” Krukowki believes, “but again, there aren't really any targets. [Rupert] Murdoch is speculated to be interested in Puls TV, but I'm not sure how serious that is.” Murdoch’s News Corp held a 35% stake in the TV network for a couple of years until it sold to Dabski and the monks in 2008.
Certainly, TVN, WP.pl and Puls TV look to be the last available media outfits that can offer sizable exposure to the Polish consumer. Cyfrowy Polsat, the country's largest media group, is now a relative giant under the ownership of billionaire Zygmunt Solorz-Zak, and is still working on absorbing the country's second-largest mobile operator Polkomtel, which it bought in a PLN5.15bn all-share transaction in 2013.
Other names include Global City Holdings, which completed a merger of its core cinema holdings with UK-listed Cineworld in May. The WSE-listed Agora's main asset is newspaper Gazeta Wyborca, so it offers relatively little potential growth. “The print segment … is expected to significantly underperform the market,” Erste Bank notes.
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