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ITV - ad declines continue

ITV's half year revenue fell 2% to £1.6bn. Declines came from an 11% drop in advertising revenue amid 'very challenging' conditions in...

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ITV's half year revenue fell 2% to £1.6bn. Declines came from an 11% drop in advertising revenue amid "very challenging" conditions in the TV advertising space. Studios - where ITV makes productions for third parties in the UK and internationally - saw revenue rise 8% to £1.0bn. ITV's streaming platforms had a 29% increase in monthly active users to 12.5m and plans to have 20m as well as £750m of digital revenue by 2026.

Underlying cash profit (EBITA) fell 52% to £153m, reflecting the lower revenue and higher costs, especially in streaming. Free cash flow was £31m compared to an outflow of £11m, largely because of lower pension costs. Net debt was £724m as at the end of the period.

An interim dividend of 1.7p was announced, in-line with last year.

ITV shares rose 4.5% following the announcement.

View the latest ITV share price and how to deal

Our view

ITV's had a tough first half, as expected. Traditional TV advertising is an increasingly difficult environment to make money, especially with the current economic uncertainty. But ITV is doing what it can to stoke the fires of growth another way.

ITVX, the new streaming platform launched at the end of last year, has come out the blocks firing. A successful launch, and the momentum it gives, was vitally important for ITV's transition away from the declining audiences that traditional broadcast attracts.

ITV has tens of thousands of hours of popular content to beef up an on-demand streaming catalogue, thanks to hits like Love Island, Coronation Street and I'm a Celebrity. There's also a host of other popular shows across its family of channels.

It's hard to knock initial progress from ITVX, but there's no getting away from the sheer scale of competition in this sector. The US giants have substantially deeper pockets to throw at growing market share too. We simply wonder if today's consumers will be convinced to sign up for yet another monthly subscription from ITV, regardless of price point.

Then we have the Studios business, which makes and distributes shows in the UK and abroad. Some of these are sold back to ITV's Media & Entertainment business, but other blockbusters like Line of Duty are made for others. ITV retains the rights to a huge slate of produced global content. Studios is the only thing driving revenue upwards for the group. Our new binge-watching cultures mean established streaming giants and other channels are desperate for high quality content.

But running a production company doesn't come cheap. Profits are growing, but margins are unlikely to ever shoot the lights out. The likes of Netflix can attest to the cash-pit that content generation can be.

We also can't rule out a break-up of ITV. If this were to happen, we'd view it as a loss of some great assets.

ITV isn't exactly in bad financial shape. Underlying net debt isn't overly high, which adds a layer of flexibility. Cash flow's reasonably healthy but is something we'll be keeping an eye on. The prospective yield is higher than average, which partly reflects the challenges levelled at ITV's valuation in recent times and please remember no dividend is ever guaranteed.

Ultimately, ITV has come a long way. But the longer-term picture becomes muddied by concerns over digital competition and tough margin environment in Studios. Having the right idea is entirely different to being able to deliver the shift fast enough to offset the structural decline in broadcast advertising. The valuation looks about right to us.

ITV key facts

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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 disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 27th July 2023