In more gloom for Australia’s embattled media sector, a leading Sydney based media analyst now says recovery for the sector won’t be expected until 2012.

Other analysts have been looking at a recovery from late 2010 into 2011. Credit Suisse media analyst, Finola Burke, has now pushed that out by around another year.

In a note to clients this morning, she downgraded a number of media companies and the prospects for the sector because of the worsening economy.

We have found little to convince us that the advertising downturn will be short and sharp. Corporate Australia’s capacity to refinance its debt obligations will be the key determinant for business investment, corporate profits, business confidence and ultimately employment growth.

These factors, in turn, will drive a large part of advertising expenditure. We are not confident that we will see a recovery in these conditions until CY2011 and hence have pushed out our advertising recovery until 2012.

We have, for the most part, captured this in our forecasts but have downgraded APN, FXJ (Fairfax), SEK (Seek), TEN and WAN (West Australian Newspapers) to deepen the impact of this downturn in both Australia and New Zealand.

We have also assumed that New Zealand publishing experiences limited recovery until CY2012. We have, for the most part, captured this in our forecasts but have made further adjustments to APN for its Australian radio and outdoor revenues in FY10F and beyond, and no recovery in New Zealand advertising until FY12F.

That’s bad news for Fairfax as well with its strong NZ presence.

Ms Burke wrote: “It was apparent from the muted commentary from companies that advertising visibility remains poor and ad spending is volatile. Few companies were able to predict conditions beyond the end of March and this confirmed our view that this half is likely to be the toughest for traditional media with continued weakness into the second half of the calendar year.

“Debt exposure remained a focus for investors with some companies finally responding to market concerns by making statements about their headroom on existing debt covenants or providing full detail on the covenants.”

She wrote that four companies; SEK (Seek), AEO (Austereo), PRT (Prime) and PGA (Photon) cut their dividend payout ratios to conserve cash while only three companies. CMJ (Cons Media) SEV (Seven Network) and WAN (West Australian Newspapers) maintained or bettered the dividend paid in the prior year.

Ms Burke said subscription-based business models and cash-boxes, perhaps unsurprisingly, produced the best performances for the period. REA (Real Estate Group, part owned by News Ltd) delivered the best EPS growth in our coverage universe lifting 47% for the half. CMJ (38% owned by James Packer) was the next best performer delivering 5% NPAT growth after adjusting for PBL Media, which it no longer includes in its accounts. AEO was also one of the few companies to deliver NPAT growth for the period.

Prime and Austar (AUN recorded the greatest declines in NPAT pre one-off items (40% and 80% respectively), with the former carrying the cost of its takeover of Becker Group and the latter carrying increased charges relating to executive stock-based compensation.

“We believe FXJ has also more than priced in the downside risk at its current levels but acknowledge that the catalysts for this stock will be linked to the broader advertising recovery.”

Fairfax cut its dividend late last year.