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ITV - 2015 Results & special dividend

Steve Clayton | 2 March 2016 | A A A
ITV - 2015 Results & special dividend

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ITV plc Ordinary 10p

Sell: 113.80 | Buy: 113.95 | Change 3.55 (3.21%)
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Profit before tax rose by 18% to £843m last year, with the Broadcast and Online division growing revenues by 6%, whilst Studios grew by 33%, taking studios revenues through £1bn for the first time. Overall, group revenues rose by 15% to £3.0bn and margins improved to 29%. Earnings per share grew by 20% to 16.5p (2014:13.8p) and the group raised the full year dividend by 28% to 6.0p and announced an additional 10p per share special dividend. The shares dipped around 1% on the news.

Growth came from a combination of strong advertising revenues and the benefits of recent acquisitions of production studios. Total Non-Net Advertising Revenues (NAR) rose by 25%, whilst NAR itself rose 6%, with both making broadly equal contributions to total revenues, before eliminations.

ITV strengthened their international content business with acquisitions, notably Talpa Media and succeeded in growing advertising revenues ahead of the market. Looking to 2016 the group expects a strong performance from its international drama pipeline, with new series including Victoria, Tutunkhamun, Houdini & Doyle, Cold Feet, Poldark, Shetland, Aquarius, Endeavour and Vera. Entertainment formats returning include The Voice, Hell's Kitchen and The Chase.

Advertising revenues grew very strongly in Q1 last year, up 12% and ITV expect a flat start to the year against this comparative, with rising advertising revenues in Q2, benefiting from the Euro football. For the year as a whole, ITV expect to outperform the TV ad market.

ITV see further growth opportunities across the company, both organically and via acquisition. The £400m special dividend will see pro-forma net debt/EBITA reach circa 0.8x, comfortably below the group's stated upper limit of 1.5x, leaving scope for additional acquisitions and delivering returns to shareholders.

Our view:

ITV shares performed strongly in 2015, driven by an improving advertising outlook and a string of earnings enhancing acquisitions of production studios. The acquisition of Talpa brought John de Mol onto the ITV team. He founded Endemol which went on to develop the Big Brother reality franchise. He is now committed to staying with Talpa, within ITV, for years to come.

ITV looks to be in a good position; its balance sheet is sufficiently strong to keep funding the acquisition of new production houses. That gives more content to use at home and to sell abroad. Earnings are enhanced by the deals, and ITV becomes less dependent on terrestrial advertising revenues, which are still an important source of income for the group. Already, ITV is the largest independent production house in the USA.

If ITV can find the right deals, at sensible prices, then it could grow even faster than the market consensus currently predicts. Expectations are for sales to rise from £3.0bn last year to £3.4bn in 2018, with earnings per share forecast to increase by over 20% in the process.

The shares trade on a 2016 price to earnings ratio (P/E) of 14x, falling to 12.4x two years later, on consensus forecasts. The dividend is also an attraction. The shares yield 3.6% for 2016, rising to 3.9% in FY17 on current analyst estimates. The group is trading well and we remain confident in its long term prospects.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.