Analysts Hate This Finnish Media Stock That’s Up 163% in a Year

  • Sanoma surges as cost cuts at newspaper publisher take hold
  • CEO is pushing to broaden ad sales to convince skeptics

Europe’s best-performing media stock is also among the least liked by analysts.

Finland’s Sanoma Oyj has more than doubled in value in the past year, helped by a return to profit after five quarters of losses. The Helsinki-based company has cut jobs, assets and costs. Still, analysts aren’t buying into the turnaround -- just one out of the eight who follow Sanoma recommend purchasing the shares. Their beef: Analysts don’t see how the company can generate the growth needed to support the stock price at these levels.

While Sanoma will sustain its earnings improvement next year, it “won’t probably be strong enough to justify the valuation of the stock at the moment,” said Jaakko Tyrvainen, an analyst at Evli Bank in Helsinki who’s among those who recommend selling.

The mismatch between analysts’ views of the company and its turnaround points to challenges facing management in making an overhaul stick. Chief Executive Officer Susan Duinhoven counters that Sanoma is well positioned to cope with pressure from online giants such as Google and Facebook. The company’s local-language content isn’t easily available from other sources, and Duinhoven is seeking synergies between Sanoma’s print, online, TV and radio assets.

“If the content is must-have, it doesn’t matter if it is online, print or TV,” Duinhoven, 51, said in a conference room at the company’s glass-walled headquarters overlooking central Helsinki. “It’s about playing the cross-media play -- that we can do -- and this is much more difficult for Googles and Facebooks.”

Sanoma sells for 17.6 times this year’s estimated earnings, compared with a median multiple of 15.2 times for European media companies. It rose 3.4 percent Thursday to close at 8.79 euros, giving the company a market value of 1.4 billion euros ($1.6 billion). The stock has risen 163 percent in the past year. The company didn’t immediately respond to a request for comment on analysts’ views of the stock.

Sanoma’s cornerstone for decades has been its flagship Helsingin Sanomat newspaper -- read by virtually all adults in the Helsinki region at its peak. Like its peers globally, the publisher began to face stiffer online competition around the turn of the millennium, eventually resulting in eroding advertising and subscription revenue.

Job Cuts

After rounds of leadership changes and staff cuts failed to revive the company’s business, Sanoma tapped Duinhoven, a former executive at publishers including Koninklijke Wegener and Readers Digest, as its new chief starting Oct. 1 last year. Disposals began before her tenure -- tens of magazine titles in markets such as the Netherlands and Belgium, and operations in Eastern Europe -- helped the company to cut its workforce to about 5,500, a third of what it was a decade ago. Job reductions also spanned editorial staff, sales and logistics.

The focus now for Duinhoven is to make sure Sanoma’s content continues to appeal, and to make it easier for marketers to buy ads in a broader portfolio of the company’s publications, websites, as well as TV and radio outlets.

An effort to package Sanoma’s diverse products into a single offer for advertisers has begun to yield results -- Duinhoven cites the success of the Finnish version of the TV show “Who Wants to Be a Millionaire” as an example. The program, which contributed to a 5 percent increase in Sanoma’s TV-viewer market share, has helped the company to convince customers who bought ads on that show to expand to other products.

“When you are the winner on Saturday night, you can advertise the rest of your portfolio and the whole thing starts clicking together,” she said.

Challenges going forward include an aging population gradually replaced by younger generations not equally familiar with Sanoma’s brands, combined with ever-increasing online competition. The company should focus on strengthening its online and digital offerings to succeed in the long term, Evli’s Tyrvainen said.

Duinhoven isn’t quite prepared to write off print as a competitor.

“If the content is good, it will find its media type,” she said.

Before it's here, it's on the Bloomberg Terminal.