-Advertising spending to improve
-But mostly in new media
-Publishers face strong headwinds
-TV advertising to rebound


By Eva Brocklehurst

Traditional media is on a downhill road, advertising spending is choppy, debt levels are high. Oh dear, the analysts' outlook for media in 2013 doesn't promise a lot. What it does promise is opportunities in those grasping the new age in advertising spending, with improved returns down the track. Hence, there is a divergence in the outlook, resulting from the remorseless shifting from print to internet and mobile advertising.

Overall, advertising is expected to improve, according to CIMB, after a very weak 2012. The analysts are forecasting total growth of 4.4% with traditional advertising making up just 0.6%. Citi expects there'll be some progress on cost savings which should help sector earnings but agrees that the disparity in traditional versus online advertising growth will remain high. Citi analysts expect growth of 3.1% in advertising overall, and the federal election in September adding 1% to that. Within the traditional market, TV is expected to rebound 5% in 2013 while radio and outdoor advertising remain consistent and expected to grow 2%.

Goldman Sachs notes publishers have not started 2013 well in their efforts to transform their business models. The analysts expect mastheads will continue to close, and flag this possibility with regard to Fairfax's ((FXJ)) The Age and Sydney Morning Herald. The broker is steering clear of stocks with structural headwinds, putting a Sell recommendation on APN News & Media ((APN)) and Fairfax. Citi's least preferred stocks include Fairfax, APN and also Seek ((SEK)) but it retains a Hold rating on all three. The broker sees potential in online asset growth for Fairfax but concedes both FXJ and APN are struggling to find value in the digital world. It's just that they appear cheap on valuation. Why Seek among the least preferred? The broker has problems with the company's valuation but likes its business model. CIMB has trimmed forecasts for Fairfax based on the disposal of Trade Me stake and US agricultural publications but has an Outperform rating. Why? Because Fairfax is ruthlessly cutting costs and this should support earnings in the face of revenue decline. Moreover, there are some quality online assets here that CIMB believes are materially undervalued.

So, which stocks have upside risk in this brave new world? Credit Suisse finds for Carsales ((CRZ)), REA ((REA)) and Seven West Media ((SWM)). Carsales' earnings growth is expected to be strong, particularly in display and data services segments. The broker also notes high traffic on the website and solid uptake of the mobile offering. Goldman Sachs also rates CRZ as a Buy. In terms of REA, Credit Suisse sees it having potential for a special dividend, given its cash position. Meanwhile, SWM has the increasing importance of live TV.

Citi also likes SWM, rating it a Buy as it has broad appeal to advertisers and a solid audience. Citi