ITV shares await liberation

<p>A steady-as-she-goes interim update from ITV was deemed satisfactory by investors, helping the shares rise off a 0.7% early-morning loss to a gain of 2%. […]</p>

A steady-as-she-goes interim update from ITV was deemed satisfactory by investors, helping the shares rise off a 0.7% early-morning loss to a gain of 2%.

No arguing with the solidity of ITV’s cash streams, during the third quarter:

  • 9-month total revenues up 8% to £1.803bn
  • Broadcast and online revenues +7% to £1.432bn
  • Online pay , interactive growing +24%

 

And key television metrics are also trending in the right direction:

  • Confident of double-digit profit growth in the full year
  • Family Net Advertising Revenues (NAR)

o   seen +1% in November

o   +1%-3% in December

o   1%-2% for Q4

o   FY seen +5%

If achieved, the complete-year revenue rise would be well ahead of the average for the UK TV market.

What more could a broadcast investor wish for?

Well, we think they could wish for quite a bit more.

 

ITV pay-outs are flattening

After all, ITV Plc.’s prospective dividend yield of 3.1% fairly pales in comparison with its main listed broadcasting peer, Sky with the latter on 4.12% against ITV’s 2.10%.

We think there is a degree of dividend anticipation among investors regarding the ITV yield.

The compound annual growth rate for dividends could be 13%, looking at consensus forecasts for this year and the next four (although forecast growth for 2014 is as much 21%).

Return on equity (ROE) is currently at just under 39% at ITV whilst Sky is returning 83%.

ITV ROE should flatten from its crises-to-recovery gradient and trend lower.

ITV ROE

 

Source: Thomson Reuters

 

Growth forecasts still eye Liberty

We also query the price-to-earnings ratios that remain around 14-15 times within a fiscal 2013-2015 time frame.

It looks like some bid interest remains in the stock price, even though there have been none of the elliptical references to US cable giant Liberty Media of the summer for months (and no mention today).

The only operational figures which scream of surging growth are the digital ones, and these do not appear to be a major priority, yet, for CEO Adam Crozier, who made it clear he would focus this year on continuing to right-the-ship, whilst laying the ground work for growth.

Audience shares for the all channels seem close to five-year lows, despite their firmness.

 

ITV versus the consolidated Sky

Meanwhile, Sky’s consolidation into a larger European broadcaster (completed today) fortifies its cash flows, placing it on a better footing to tackle an increasingly consolidated broadcasting landscape by means of combined marketing spend and amalgamated purchasing power.

The best hope for continued profit growth comes from the prospect of another step in liberalisation: that ITV could begin charging for the shows it now gives to BSkyB and Virgin for free under its British public obligation.

Ofcom launched its latest review into public service broadcasting in May. It’s expected to run well into the autumn. A public consultation will follow, ending in the spring.

In the meantime, the stock will continue to act ambivalently—unless the return of real bid interest is confirmed.

Worth bearing in mind that highly-indebted Liberty became less acquisitive than usual this summer after debt agency Moody’s chided the Virgin Media owner for a set of relationships with media companies with “no material upside”.

 

ITV ULTRA LONG TERM RESISTANCE

 

 

 

 

ITV DAILY 13TH NOVEMBER

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.