13:55 Tuesday 23 October 2018.

UK broadcaster ITV is set to go ex-dividend this Thursday and following their pay out, investors might consider exiting their positions, however, forecasted EPS and expected revenue might give them reason to hold on or buy given the current low share value.

Since former easyJet boss Carolyn McCall became ITV CEO in January this year, she has identified holes in the British broadcasters game and sought to immediately deal with them jotting up success instantaneously. The two main areas of action were the way that advertising was used and promoting and upgrading the ITV Hub.

ITV became the first British broadcaster to incorporate sponsorship and product placements into their flagship programing. This saw the likes of Costa Coffee hitting the streets of Weatherfield in Coronation Street, as well as its £30m deal with Comparethemarket.com, Love Island garnered a whole host of advertisers and sponsors for this year’s show and the X Factor also struck a £30m deal with fast food delivery company Just Eat. To give a rough estimation of how effective this form of advertising is, Just Eat reported that they sold over 500,000 meals during the X Factor final.

On the whole, advertising revenues are up 2% year on year and total revenues up 8% to over $1.5bn. The largest chunk of the increases came from online advertising which saw a massive 48% rise. This increase goes more to highlight where the holes were spotted and acted upon by McCall, rather than the introduction of new innovation.

The ITV Hub has seen a major overhaul as the company seeks to garner some of the streaming traffic that the likes of Netflix, Amazon Prime and YouTube rely on. Whilst there is no dedicated streaming programing, the hub allows viewers to catch up on shows they missed and watch spin offs and complementary shows that they might not watch during their original broadcast times. To oversee the upgrade and rollout of new streaming services, ITV hired Mark Smith as their new CTO, the man responsible for the hugely successful BBC iPlayer. The hub not only suggests programing, but now allows the company to use direct marketing based on users viewing preferences which has helped boost their figures in that field. There is now also a paid service for the hub which lets views watch their favourite shows without advertising for a fee of £3.99 per month.

To keep expectations in check, there are a few of areas of concern regarding the new use of adverting. The future of regulation with regards to junk foods and certain beauty products may hit a number of current and prospective sponsors and advertisers for ITV and there is also the question of at what point does this new flow of income from advertising meet saturation point with all funnels filled to capacity. ITV also recently announced that they would be investing a further $40m into media, marketing and the Hub over the next three years however this appears to be a very low outlay in today’s market, worth noting that Netflix is spending billions on their assets.

In terms of their financials, ITV has seen an RoE of over 60% for the past 3 years and analysts have estimated EPS to continue to rise. The broadcaster carries a high level of debt compared to their net worth, however this is covered well by their operating cash flow. Liberum Capital reiterated their buy recommendation on the 22nd Oct and had set a target price of 260.00 at the start of the month however UBS are neutral and have a 160.00 target. Others recommendations include Deutsche Bank at 190.00 and Barclays at 180.00. One key factor for investors making their minds up on current or future positions is the seven consecutive annual dividend increases and the analyst expectations for them to grow further.


In the coming 1-3 years, it would be very reasonable to expect ITV’s profit to increase as they capitalize on the advertising revenues that had been previously untapped. Despite any regulation that may be introduced to block certain advertisers, the domestic market will provide plenty competition to fill any spaces made. Once saturation point in adverting has been reached, it is also probable that ITV could be an ideal candidate for M&A from a potential US broadcaster. One of the main reasons that the likes of Disney, Comcast, Fox and CBS showed interest in the acquisition of Sky for the last 12 months was to gain access to the European market and ITV may well provide one of them with this opportunity.

As always, if you would like any further analysis on ITV or the media sector, please feel free to contact one of our brokers on 0121 454 0770.



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