Spotlight on ITV

ITV is set to be in focus again this week, as the UK-based free-to-air broadcaster reports full year results for fiscal 2013 on Wednesday.  Expectations are that the company is unlikely to disappoint, as it continues to enjoy improving market conditions – such as the gradual return to health of the UK TV advertising market.

Additionally, catalysts like the upcoming FIFA World Cup (set to bring an increase in advertising revenue) have helped buoy confidence that the company’s prospects for fiscal 2014 will be healthy.

The company is certainly not resting on its laurels.

Just last week, ITV was in the spotlight having announced that it had agreed to acquire a 51% stake in US-based production company DiGa Vision – producer of reality and scripted programming.

That acquisition followed last year’s string of related purchases by the company, including its acquisition of a 65% stake in ThinkFactory Media for $30mn in June; and its purchase of a 60% stake in High Noon Productions for some $33mn in May.

It is well known that ITV is intent on reducing its dependency on revenue generated from advertising, and its deal-making activity is simply part of the company’s continued efforts to boost revenue from content production.

And ITV’s determination to boost non-advertising revenue was further exemplified last month when the company announced that it would launch a new pay-tv channel (called ITV Encore).

ITV Encore will encompass some of the company’s most successful dramas and is set to be made available on Sky’s platforms (that includes Sky+HD, Sky Go and Sky Store).

Meanwhile, ITV’s balance sheet remains healthy.

As at June 2013 ITV, which has a current market capitalisation of £8.2bn, had a net debt of just £78mn (gross debt of some £500mn). The company’s net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) stood at 0.1x, which is low by historical standards.

Certainly, the company has the financial flexibility to continue with its mission to further diversify its revenue streams and it is very conceivable that DiGa Vision will not be the company’s last acquisition in relation to that strategy.

But having soared around a notable 72% over the last year, the company’s share price seemingly already reflects high market expectations. 

That may well be the case for now. But currently with a sound strategy and the wherewithal to follow through, ITV appears to be headed towards creating more value, long-term.