Agora gave rather cautious feedback, commenting on Axel Springer's “Dziennik” newspaper launch, during its conference call with analysts yesterday.
Agora reiterated that it sees protection of “Gazeta Wyborcza” circulation, as the name of the game, thereby explaining why it had lowered the copy price to PLN 1.5. It declined to give a time frame for a return to the higher copy price levels of “GW”, reflecting actual costs of newspaper production. Agora reiterated that it sees its PLN 69m promotional budget, which would negatively impact the 2006 profit margin as well, as a sufficient response to Axel Springer’s “Dziennik” PLN 100m promotional spending budget. The first hard data on “Dziennik” actual circulation, indicative of a long-term level, should appear in the beginning of June.
Our view is still slightly more optimistic than the company’s, as we believe that:
-in the short-term, Agora's main revenue source, i.e. press advertising revenues should hold, as we expect any meaningful impact of the “Dziennik” launch on “GW” advertising market share only in 9-12 months, as sufficient track record is required for any newspaper publisher to enter serious negotiations with media houses.
-with copy prices of two competing newspapers equal and respective promotional budgets balanced, we believe both publishers will soon cease using margin destructive tactics,
-the two newspapers are expected to soon focus on competing on quality and, since we view ASP “Dziennik” as very similar but not a meaningfully better product than Agora’s “Gazeta Wyborcza”, we do not expect any dramatic drop in “GW” circulation, threatening the level of its advertising revenues.
We reiterate our Buy rating for Agora with PLN 60.0 fair value estimate.