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ITV – Hollywood strikes hit revenue

First quarter sees revenue dip, with ITV Studios growth anticipated in the second half.
ITV - digital strategy accelerates

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ITV reported a 7% decline in first-quarter revenue to £887mn. Positive performances in Media & Entertainment offset a 16% decrease in ITV Studios revenue, impacted by writers' strikes.

ITV Studios revenue was down due to title deliveries weighted to the second half and the impact of Hollywood strikes. Media & Entertainment benefited from strong digital advertising revenue and the growth of ITVX.

Net debt stood at £272mn, down 51% from the year-end.

The group remains on track to deliver £40mn in cost savings this year. ITV Studios revenue is expected to remain flat, with an anticipated decline in the current quarter offset by growth in the second half. Media & Entertainment is on target to deliver £750mn in revenues by 2026.

The shares were broadly flat in early trading.

Our view

ITV relies on companies paying to advertise on its traditional television channels. But given the structural decline of broadcast advertising, that makes moving ITV's top-line in the right direction a very difficult task.

One bright spot is digital advertising. ITVX, the streaming platform which debuted at the end of 2022, has continued its strong run of growth. A successful launch, and the momentum it gives was vitally important for ITV's transition away from the declining audiences that traditional broadcast attracts. While momentum is positive, ITV's digital offerings don't yet have enough scale to carry the weight of weakness in the free-to-air side of things.

There's no getting away from the sheer scale of competition in this sector. The competition has substantially deeper pockets to throw at growing market share. It’s an expensive arena to play in and that’s been weighing on profits. Management claims investment here has peaked, but we’re mindful that a drop in spending could be at the expense of growth. With a roughly 50% increase in digital revenues targeted by 2026, that’s a risk.

The Studios business 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. Medium-term guidance of 5% average annual organic growth between 2021 and 2026 doesn’t look too demanding, but Hollywood strikes and weak demand in Europe mean this year has got off to a tough start. The phasing of title deliveries mean it should have the TV hits needed to get back on track, but with revenues set to dip further in the current quarter, steadying the ship won’t be an easy task.

Margins are also unlikely to ever shoot the lights out. The likes of Netflix can attest to the cash-pit that content generation can be. Meanwhile, a chunk of revenue is still tied to the less glamourous terrestrial TV side of things, and demand here is proving tricky.

Underlying net debt has also come down, which adds a layer of flexibility. Cash flows are reasonably healthy and support a generous dividend yield. A £235mn share buyback scheme is also underway as a means of distributing the net proceeds from the Britbox disposal in March 2023. Please remember no shareholder return is ever guaranteed, especially when the outlook remains rocky for the group.

ITV has come a long way. But concerns remain over digital competition and the economy. Having the right idea is entirely different to being able to move fast enough to offset the structural decline in broadcast advertising. That’s reflected in a valuation below the long-term average, and there could still be further challenges ahead.

ITV key facts

All ratios are sourced from Refinitiv, 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 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
Guy Lawson-Johns
Equity Analyst

Guy works as an Equity Analyst within the share research team, delivering current research and analysis on individual companies as well as broader sectors.

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Article history
Published: 9th May 2024