We see 10-15% upside in the sector in 05 on DCF, CROCI, PE/g ratios
and historical multiples analysis. A high FCF yield of 6.5% in 05E and the
prospect of sector FCF exceeding net debt in 06E (1.4x) underscore our
belief that stock picks must be conditioned by a view on the quality of
managements' deployment of surplus cash. While 05 should not be a year
of strong cyclical upgrades, we are more bullish on the outlook for 06
when we expect the sector to move to discount through the year.

Deployment of cash: This is set to remain a key theme and differentiator
of stock performance in 05. We look to favour those companies investing
wisely in new avenues of growth – although we find few examples
currently. We believe the default alternative use of cash should be to
return it to shareholders or retire excess debt. Finally, we expect
companies making dubious/expensive acquisitions/investments, or those
that remain under-geared to see downward ratings pressure.
Broadcasters score well on these criteria over professional publishers.