Skip to main content
  • Register
  • Help
  • Contact us

ITV - Advertising challenges remain, Studios still growing

George Salmon | 14 November 2017 | A A A
ITV - Advertising challenges remain, Studios still growing

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

ITV plc Ordinary 10p

Sell: 120.80 | Buy: 120.90 | Change 0.60 (0.50%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

ITV's revenue rose 1% to £2.5bn in the 9 months to 30 September, although after stripping out inter-divisional deals of £347m, revenues fell 1%. Continued growth in ITV Studios, where revenues rose 9% to £1bn was more than offset by weakness in Broadcast & Online, where revenue fell 4% to £1.5bn.

The shares fell by 1.4% on the news.

Our view:

In May, Adam Crozier announced his decision to step down as chief executive. His replacement, former Guardian and easyJet CEO, Carolyn McCall, will step into a very different business to the one Crozier himself took charge of in 2010.

The balance sheet looks stronger, while a string of bolt-on acquisitions has bolstered the size of ITV Studios, which makes and sells programmes such as The Voice and Hell's Kitchen. Going forwards, the challenge is to find the right deals at sensible prices.

On the flip side, ITV itself has been mooted as a target. However, the obvious buyer, Liberty Global (which owns just shy of 10% of the group already) has distanced itself from such a move.

The growth of the Studios business, where more than half of revenues are generated overseas, means ITV is less exposed to UK advertising trends than it once was. However, a big chunk of profit still comes from selling advertising space.

Since this falls under discretionary spending for many businesses, budgets tend to wax and wane with the fortunes of the wider economy. Brexit-induced doubts are lingering, so ITV's customers are tightening the purse strings. This presents a challenge for the new CEO.

She will also need to be ready to adapt the group to the changes modern technology has brought. ITV remains the biggest commercial venue to draw in a mass audience, but it looks like viewing habits are moving towards a more on-demand set up.

This brings the group into competition with Amazon and Netflix, two pretty bruising rivals with deep pockets. Providing entertaining content is obviously essential, but building a slick, competitive platform could be just as important.

The shares trade on 9.7 times expected earnings, around a little over 30% below their historical average, and offer a prospective yield of 5.8%.

Q3 Trading update

Within Broadcast & Online, Net Advertising Revenue (NAR) is down 7% year to date, to £1.1bn. The group says some consumer goods and supermarkets are returning to TV advertising, although corporate confidence continues to be impacted by political and economic uncertainty. For the year as a whole, NAR is expected to fall 5%.

Online, Pay & Interactive revenues are up 8% so far this year, with online viewing up 41%. ITV continues to invest in the Hub service, while Britbox, which supplies US residents with British TV, is said to be performing well.

ITV1's share of viewing is slightly ahead this year, at 15.3%, with all ITV channels at 21.5%.

Studios delivered good underlying growth across all parts of the business, with ITV America an area of particular strength. Acquisitions continue, Italian producer Cattleya and UK entertainment start-up Koska added during the quarter. The group is confident ITV Studios will deliver good organic revenue growth, with profit broadly flat this year.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.