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JPMorgan Downgrades Televisa To Neutral, Still Prefers Stock Over America Movil

JPMorgan Downgrades Televisa To Neutral, Still Prefers Stock Over America Movil
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JPMorgan has downgraded Grupo Televisa SAB (ADR) (NYSE: TV) to Neutral from Overweight, saying that content EBITDA could decline again in 2016 given higher costs.

"Content EBITDA (of Televisa) should contract 6 percent y/y on incremental costs on the new over-the-top (OTT) service Blim, offsetting possible improvements in advertisement revenues as signaled by presales (-1.5 percent for 2016, vs -11.5 percent for 2015) and strong growth plus favorable regulation on cable/DTH," analyst Andre Baggio wrote in a note to clients.

Baggio said, "Higher content spending should be a 5pp drag to segment margins." However, the analyst added that ad revenues should stabilize in 2016 after the 10 percent decline in 2015 "due to a change in pricing model aimed at better monetizing TV's content, which caused significant volume declines, partially offset by up to 20 percent price increases."

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Despite the downgrade, JPMorgan continues to prefer Televisa over America Movil SAB de CV (ADR) (NYSE: AMX), given a more favorable regulatory environment.

"We expect cable to continue to gain share from AMX in broadband, due to superior offers at competitive prices. Also, DTH and cable should benefit from the analog switch-off, which is boosting demand," Baggio highlighted.

Baggio cut the price target of Televisa to $30 from $31, while the stock closed Tuesday's trading at $28.15.

The brokerage's top pick in Mexico remains the overweight-rated Megacable Holdings (MEGACABLE HOLDINGS PTG SHS COMP 2 ORD'A'SHS (OTC: MHSDF)), while it rates America Movil at Neutral.

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