ITV signals the worst half is over

The well flagged drop in ITV’s net advertising revenue of as much as 20% in June duly arrived—the fall was actually 18%—but it now looks more like a quick dip than the beginning of a deep dive.

No boom, moderate gloom

With NAR declining across the whole first half in line with guidance, there’s room for investor relief, and that is reflected in the stock this morning. Furthermore, somewhat contrary to the candid picture painted by the now departed CEO in May, net-net, both operating environment and outlook look largely static relative to expectations earlier in the year. Again, that’s an implied positive; even as the group continues to pull no punches about the impact of “ongoing economic and political uncertainty” that is crimping ad spend. Still, the rate of pulled spending is now seen as resulting in an underlying NAR fall of c. 4% in the current quarter. That is not alarming. July-September slippage is forecast to average a little under 5%, making ITV’s forecast of -7% for the nine-month period actually look a little cautious, particularly as it expects to outperform the market over the full year.

Side story or main plot?

With adjusted interim revenues of £1.697bn above expectations of under £1.5bn, full-year guidance maintained and at least £50m of combined overhead savings and programme budget cuts in the offing, we see little reason to grow more pessimistic on ITV for the remainder of the year. Naturally, opinion is split. We notice cued-up brokerage downgrades have been fired this morning, advising major investors to remain cautious. We believe these cuts are predicated at least partly on ITV’s long-standing speculative premium. We broadly agree that investors should certainly be wary of chasing the story heedlessly. However, we also think it makes little sense to ignore the elephant in the room.

ITV has not shied away from addressing the credibility of the individual options on the table, lauding its new CEO hire Carolyn McCall’s “strategic acumen” and noting on Wednesday that it expects to “refresh the strategy” when she arrives. And whilst McCall cannot be expected to have made up her mind in advance, having overseen an (at the time) large and tricky disposal at GMG, she has experience of all possible eventualities. On the other side, the ultimate controller of the Liberty companies John Malone and his lieutenants are keeping up a regular drum beat of non-categorical denials of interest. Presumably these are aimed at ensuring their sophisticated debt financing apparatus remains battle ready for the opportune moment. If or when that moment arrives, we maintain that a corporate combination would make the most sense for ITV’s growth prospects in a constrained environment. Timing is virtually impossible to predict though.

More broadly, with the group having circumnavigated a hazardous first half well, under the circumstances, we conclude that there’s little to dislike on ITV for the rest of the year, though transformations are unlikely.