Active advertising boosts earnings of media companies

A rebound in advertising spend with the ongoing economic recovery is driving up the profitability of media companies, promising investors better full-year returns.

Media firms have reported robust returns for the half-year period ending June led by Nation Media Group (NMG), the Standard Group and Scangroup.

Advertising houses such as Scangroup, Ogilvy & Mather and Access Leo Burnet—which create advertising work and book media space — are riding on the robust spend to report tidy profits

NMG, the country’s largest media house, led the pack with an after-tax profit growth of 53.1 per cent to Sh558.1 million in the review period from Sh364.5 million in a similar period last year.

NMG Chief Executive Linus Gitahi said nearly all the group’s platforms reported double digit sales growth, pushing six-month revenues to Sh4.4 billion from last year’s Sh3.8 billion.

The Standard Group, which owns the Standard Newspapers, television channel KTN television, and Radio Maisha reported a 139 per cent growth in pre-tax profits to Sh216.7 million in the six months of the year from Sh90.5 million last year on the back of 14 per cent revenue growth to Sh1.5 billion.

The only listed advertising firm Scangroup, which reported 27 per cent increase in net profit to Sh401.1 million in 2009, says it would announce better earnings for the six months to June next week.

“There was a decline in advertising in 2009, but now all players in the media industry are growing,” said Bharat Thakrar, the chief executive of Scangroup.

Kenyan firms spent Sh20 billion on advertising in the six months to June — nearly as much as the annual spend for 2008 — indicating a rise in the level of optimism in the economy that has sparked a jostling for brand visibility with the build-up household purchasing power.

Total advertising spend on radio, television and print media — excluding rate card discounts — closed at Sh20.4 billion in 2008, according to data from research firm Synovate, making the 2010 half year spend only Sh400 million short of the annual spend two years ago.

That has raised earnings expectations among shareholders this year with analysts expecting even higher spending on advertising in the second half.

These earnings trends, say analysts, will continue in the second half, reversing last year’s weak performance blamed on cuts in marketing budgets as companies battled the twin effects of the global recession and a slowdown in demand for goods and services.

“The overall economic environment is positive and should get better with the successful conclusion of the Constitution vote,” said Eric Musau, an analyst at African Alliance. “Growth is expected in most sectors of the economy and should result in more advertising spend in the second half of the year.”

The higher earnings justify the high Standard Group and NMG stock valuations and may lead to marginal price gains in the coming months, Mr Musau said.

Standard Group’s share price has moved between Sh35 and Sh45 in this year while NMG rose from Sh107 in January to Sh155 in June.

Mr Musau says while competition has intensified among media firms, robust growth of the economy should help lift profitability across the entire industry.

“Media firms with a presence across all platforms go into this competition with an advantage,” he said.

Strong presence

The Standard Group recently launched Radio Maisha, widening its footprint besides the print and television offerings after investing in a new printing press.

NMG with a strong multi-media presence in Kenya is also present in Uganda and Tanzania.

The group has invested about Sh300 million in a new printing press in Tanzania to enhance the quality of its print titles.

Corporate Kenya has been expanding its marketing budget to woo consumers whose purchasing power is rising, helped by low inflation and better economic prospects.

“Most companies are more confident of getting returns on their marketing efforts as the economy picks up and are therefore pushing for more placements,” Ms Phyllis Kinyanjui, a media director at Scangroup, said in an earlier interview.

The economy grew to 4.4 per cent in the first quarter but the peaceful endorsement of proposed Constitution is expected to help achieve a growth rate of 4.5 per cent for the year.