ITV will receive a total consideration of up to £1.6bn if the deal completes. That includes £1.2bn in cash upfront, up to £0.2bn in 2028 dependent on business performance, and ownership of Sky’s Love Productions, the maker of the ‘Great British Bake Off’.
The deal is subject to regulatory approvals and is expected to close in the second half of next year. On completion the group expects to return around £950mn to shareholders. Thereafter, the group will be fully focussed on its production business.
This year’s guidance remains unchanged.
The shares rose 1.5% in early trading.
Our view
ITV has now received a firm offer from Sky for its Media & Entertainment (M&E) business. This includes ITV’s broadcast business, as well as ITVX, which has been a big growth driver for the group in recent times. The £1.6bn consideration looks a decent price. But given that number’s been in the market for a while, the reaction on the day was limited. It’s not quite a done deal yet and investors should still consider the business in its entirety.
M&E performance has been weak of late due to a tough comparable period, but trading is improving. M&E still makes up around half of the group’s revenue, so the sale raises questions about the long-term options for the rest of the group. It could leave the remaining Studios business open to bids from other buyers.
The Studios business is arguably ITV’s crown jewel. It makes and distributes shows in the UK and abroad. That said, production businesses can be a bit more lumpy than advertising-funded broadcast revenues, with performance often depending on the timing of commissions, deliveries and hit shows. The addition of Love Productions should be a complementary fit but is more of a bolt-on rather than transformational.
Until the deal is signed, sealed and delivered ITV continues to rely on companies paying to advertise on its traditional television channels. Given the structural decline of broadcast advertising, that has made moving ITV's top line in the right direction very difficult. But there are clearly aspects that have appealed to Sky.
In the short term it should get a helpful boost from the men’s football World Cup this year, as more matches are being shown on the group’s channel, creating prime-time advertising slots. Another bright spot has been digital advertising. ITVX continued its stellar run, with streaming hours continuing to grow at double-digit rates. With more eyeballs on ITV’s shows, digital advertising revenues are flowing in, giving management confidence that by the end of 2026, digital advertising revenues will exceed £750mn (2024: £482mn).
The balance sheet remains in good shape, providing a layer of operational flexibility. There’s also a generous 6.2% dividend yield on offer. But please remember, no shareholder return is ever guaranteed.
The Sky deal could help the market put a cleaner valuation on ITV Studios as a standalone content business, helped by the £2.1bn content supply agreement with ITV M&E and Sky. But deal progress remains the main catalyst for now, and any setback would likely weigh on investor sentiment.
Environmental, social and governance (ESG) risk
The media industry’s ESG risk is relatively low. Product governance is the key risk driver, alongside business ethics, labour relations and data privacy & security.
According to Sustainalytics, ITV’s management of ESG risk is strong. Its environmental policy is adequate and executive remuneration is explicitly linked to sustainability performance targets. However, its overall ESG reporting falls short of best practice.
ITV key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. 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 LSEG. 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.