Skip to main content
  • Register
  • Help
  • Contact us

ITV - ad revenue guidance positive, but not certain

Sophie Lund-Yates, Equity Analyst | 12 November 2020 | A A A
ITV - ad revenue guidance positive, but not certain

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: 120.65 | Buy: 120.75 | Change 0.45 (0.37%)
Chart View factsheet

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

Third quarter external revenues fell 16% to £1.9bn, reflecting a 13% fall in broadcast advertising revenue to £1.3bn, and a 19% drop in Studios revenue to £902m.

85% of productions which were halted because of coronavirus have now been delivered, or are back up and running. However, further lockdowns are adding to production costs and delaying Studios' ability to run at full capacity. This will impact revenue and margins in the fourth quarter.

Total advertising Q4 revenue is expected to be slightly up year-on-year, provided England's lockdown ends on 2 December.

The shares fell 1.0% early trading.

View the latest ITV share price and how to deal

Our view

ITV was battling against a multitude of headwinds before the pandemic. But coronavirus has trumped the lot, temporarily wiping out the group's revenue earners - advertising and studio production. Together with a relatively fixed cost base, profits halved.

And just when Studios looked to be re-discovering its feet, lockdown 2.0 is slowing production down - and speeding costs up - once more. The Studios' business is an important part of ITV's strategy, which involves diversifying away from traditional TV, and being at the forefront of content production. The longer this division's held back, the longer that strategic pivot will take.

Then there's the bread-and butter advertising business. This was already a tough market to be in, with marketers continuing to be tempted by digital ad slots on the likes of Facebook. And with the current disruption, advertising trends are likely to be subdued for some time. In economic downturns marketing budgets are one of the first things to get slashed.

With traditional TV ads feeling the current pain more, we'd like to see ITV capturing an increasing amount of online advertising revenue. The loss of blockbuster names like summer Love Island, and a lower number of soap opera episodes has held things back here. This is disappointing, but not something to focus on - this area is still too small to turn the dial.

ITV has been able to offset some of the lost income with its back catalogue of existing content. The group's own streaming efforts, Britbox and ITV Hub, are also playing an increasing but still relatively insignificant role too. We're yet to be convinced if enough people can be persuaded to sign up to another monthly subscription, and the likes of Netflix and Amazon have significantly deeper pockets.

All-in-all there are a lot of spinning plates at ITV, and most of them aren't in the best shape. That means the group's financial resilience is important. ITV has access to significant liquidity and for now net debt is under control. But with earnings taking a hit, this is something we're keeping a close eye on. Not just because interest payments can quickly become onerous but also that ITV's ability to borrow depends on it.

ITV continues to live with a lot of uncertainties and that's reflected in its current valuation. This is likely to remain the case so long as advertising revenues remain the biggest money maker, so it's important we see other revenue streams like Studios, become a bigger part of the story. This strategic shift will take some time. For now prosperity in the medium term, rests on an advertising recovery.

ITV key facts

  • Price/Earnings ratio: 9.0
  • 10 year average Price/Earnings ratio: 11.6
  • Prospective dividend yield (next 12 months): 5.7%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Register for updates on ITV

Third quarter trading details

Total advertising revenue fell 16%, as a 2% uplift in online revenue failed to offset declines elsewhere. Advertising trends improved in Q3, with total advertising spend down 1% in October, having sequentially improved since the 23% drop in July.

Certain sectors spent more compared to last year on advertising, including: FMCG, Supermarkets, Publishing and Broadcasting, Telecommunications, Food, Government, Charities and Other, and Household Stores

Total viewing rose 2%, thanks to an increase in live viewing. Reduced soap opera episodes and lack of summer Love Island meant online viewing fell 6%. Monthly active users rose 1%. ITV Family's share of viewing (SOV) was down 4% from 23.2% to 22.2%- ITV attributed this to the higher volume of news content on the BBC during the period.

The group's on track to deliver the previously announced cost saving target of £60m in 2020, of which £10m is permanent.

Reported net debt, which includes leases, was £775m at the end of September, compared to £783m at the end of June. ITV has access to £400m of readily available cash, £829m of undrawn credit. In total, ITV has liquidity of £1.2bn.

Find out more about ITV shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.