ITV plc (ITV) Ordinary 10p

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ITV’s total revenue grew by 2% to £2.8bn over the first nine months of the year. Studios revenue was up 11% due to favourable timing of releases to streaming platforms. This was partly offset by a 5% decline in Media & Entertainment as last year’s advertising revenue benefitted from the 2024 men’s Euros.

Within total revenue, digital advertising revenues were up 15%, helped by total streaming hours rising 14% to 1.7bn hours.

ITV highlighted that the upcoming UK budget has caused uncertainty in the sector, and fourth quarter total advertising revenue is expected to decline by 9%. Additional cost savings of £35mn are expected to be delivered to offset this.

As a result, full-year guidance has been maintained, pointing to total organic revenue growth of 5% at a margin of 13-15%.

The shares were broadly flat in early trading.

Our view

ITV’s third-quarter performance was mixed, with double-digit growth in its Studios business largely being offset by declines in Media & Entertainment (M&E) due to a tough comparable period. The outlook for the fourth quarter was worse than markets were expecting, but additional cost cuts look set to keep full-year guidance on track.

The day after results were released, ITV confirmed that it’s in talks with Sky about the potential sale of its M&E business. This would include ITV’s free-to-air TV channels, as well as ITX, which has been a big growth driver for the group in recent times. While nothing is confirmed yet, the £1.6bn figure being discussed looks like a good price for ITV, sending the shares 14% higher on the day.

M&E 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. Some of these are sold back to ITV's M&E business, but other blockbusters like Line of Duty are made for others. The sale of these programmes isn’t currently directly impacted by US tariffs.

ITV relies on companies paying to advertise on its traditional television channels. Given the structural decline of broadcast advertising, moving ITV's top line in the right direction is very difficult. And due to the Men’s Euros 2024 boosting performance last year, the group has come up against some tough comparable numbers this year.

One bright spot is 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 2026, digital advertising revenues will exceed £750mn (2024: £482mn).

Helped by the sale of its stake in BritBox International last year, the balance sheet remains in good shape, adding a layer of flexibility to operations. There’s also a generous 7.3% dividend yield on offer. But please remember, no shareholder return is ever guaranteed, especially when the outlook remains rocky for the group.

Given ITV's relatively modest valuation, it’s no surprise to see interest from potential buyers. Progress on the deal is likely to be the main driver of sentiment in the near term, and failure to agree terms would likely weigh on the valuation, perhaps presenting an opportunity for investors. But given the structural decline in broadcasting advertising, other parts of the business need to work harder, making it difficult to accurately plot the group’s growth trajectory.

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.

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.

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