ITV, a growth opportunity now at a price well underpinned by fundamentals.

Sunday, Jul 24 2016 by

ITV (LON:ITV) is due to isssue its interim results on Wednesday, July 27.  This is a stock I have been following for quite some time and which I see now as an attractive investment opportunity.  Should there be a note of caution in the outlook statement on Wednesday with respect  to UK short-term advertising revenues, as some analysts have hinted, and that leads to the share price slipping a little, that would, for me at least, be an opportunity to increase my holding.

I have been building up a stake in ITV (LON:ITV) only since it dipped below 170p in the wake of the EU referendum result. I started buying then after following it for quite some time and did so because the fundamentals seem to be good, because it is a company which reports in a very clear way and which I find easy to understand, because the management has a good track record and a clear and clearly-expressed strategy, because I took and maintain the view that the EU referendum result will not lead to there being a major or a lasting impact on the growth drivers of its business and because I see several possible kickers which are not, imo, reflected in the share price.

The fundamentals are:

A PER of just over 11.
A dividend on 2015 results of 6p  plus a special dividend of 10p, corresponding grosso modo to the year's FCF.
A business which is highly cash-generative.
A ROCE of 31.7%, a ROE of 46.5%, an operating margin of 22.4%.
A dividend cover of almost 2.
A very sound Balance Sheet.

An excellent analysis, from February 2016, of these fundamentals and with a historical perspective is this one by Phil Oakley of ShareScope:

The clarity and depth of ITV 's reporting is exemplary. Here is their last results RNS, for 2015:

From the detail given, one is able to understand in depth the business and its drivers. By that I mean not only the financials but (equally importantly for me) the present and future shape of the business and the strategic direction the management have mapped out for it.

(That degree of detail must be…

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ITV plc (ITV) is an integrated producer broadcaster (IPB) and creates, owns and distributes content on multiple platforms globally. The Company operates through two segments: Broadcast & Online and ITV Studios. The Broadcast & Online segment operates commercial channels in the United Kingdom (UK) and delivers content through linear television broadcasting and across multiple platforms. ITV also engages directly with consumers through subscription video on demand on the ITV Hub+, competitions, live events, gaming apps, merchandise and pay per view events, driving value from consumers' increasing willingness to engage with brands. The ITV Studios segment is the Company's international content business which creates and produces content in the UK and internationally across 12 countries. ITV Studios produces programming across a range of genres including drama, entertainment and factual entertainment for ITV's own channels in the UK and local broadcasters in the UK and globally. more »

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43 Posts on this Thread show/hide all

Ramridge 2nd Sep '16 24 of 43

In reply to post #148782

Hi Jane -
Many thanks for this document. It really is an in-depth study of the online entertainment industry, by no less than the prestigious BCG.
Lots of people say 'content is king'. They really need to read this report to realise why this is increasingly so.
My reading of this report confirms what I had suspected : ITV and eOne are both in a sweet spot.

Regards, Ram

BTW , people, don't print this! Read it on you ipad or kindle. You will kill your ink cartridges!

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Julianh 13th Sep '16 25 of 43

Dear Jane
I was wondering what you think about the large director share sales yesterday. The CEO and one other director have between them sold one million shares, significantly reducing their holdings. In this instance they are not cashing in on a high point in the stock price as the price has still not recovered fully from its Brxit induced slump. Do you know anything else that might be relevant?

I read all your posts with care as they are always deeply analysed and carefully thought through.

All the best to you.


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janebolacha 13th Sep '16 26 of 43


I don't know of a reason for those share sales and have asked ITV investor relations about them.

It is rather silly for them not to give any reason for the sales, I agree.

Best wishes,

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janebolacha 13th Sep '16 27 of 43

In reply to post #150231

Julian, this is the response from ITV. .

Hi Jane

Thanks for your message.

As you can appreciate the directors have limited times during the year when they are able to make a sale. The sale yesterday was purely of a personal nature and both directors still have a significant amount of shares still held in ITV.

Kind regards"

My own views on ITV as an investment are unchanged.


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herbie47 13th Sep '16 28 of 43

Well if CEO and FD have sold £1m of shares each and it's not part of a share option, it does not look good to me. Anyone know how many shares they still hold? It does not say on Stockopedia.

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crazycoops 13th Sep '16 29 of 43

1.8m and 1.2m (plus change), respectively.

Blog: Share Knowledge
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herbie47 13th Sep '16 30 of 43

In reply to post #150276

Thanks, did they buy them or get them free?

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crazycoops 13th Sep '16 31 of 43

No idea - I don't hold - I just noticed the original RNS had the residual holdings listed.

Blog: Share Knowledge
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janebolacha 13th Sep '16 32 of 43

Julian, Herbie, Crazycoops et al,

You might find this FT link useful. It enables one to track all director share dealings going back years and years. There are several sales by Mr Crozier and Mr Griffiths, valued in the millions sometimes.

Whether this will be the case this time, I don't know, but the share price seems to have gone UP quite sharply in the months following their every share sale (the post-Brexit downturn excluded, of course).

Just saying!



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herbie47 13th Sep '16 33 of 43

In reply to post #150300

Jane, thanks for that link it's useful although it does not tell you if they are share options, The large sales in March 2015 were part of sale options, the ones yesterday do not appear to be share options.

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PJ0077 14th Sep '16 34 of 43

In reply to post #150309


The ITV Remuneration Policy is something the Board clearly spend a lot of time thinking about as it occupies SEVENTEEN pages of the Annual Report (p68-84).

Adam Crozier's salary of £941,000 is enhanced by:

  • a bonus of max 200% of salary
  • an LTIP share award of max 350% of salary

Clearly this last amount would equate to an award of 1.6million ITV shares in a good year. Implicitly his share-holding in ITV has largely/wholly been awarded to him rather than him investing his own cash. Sadly this is all too common in FTSE-350 companies.

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webvivre 16th Sep '16 35 of 43

Worried that directors have been selling??

Website: A to Z Directory
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qvg 29th Sep '16 36 of 43

In reply to post #145944

thank you very much for your very interesting post. i have been a small holder in ITV for a few months, and think the time has maybe now come to buy a larger position. Broker reports forecast a significant increase in net debt for this year (eg Alfa Value shows from 319m to 730m). do you know why this is?

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paraic84 5th Nov '16 37 of 43

This is a good post thank you, with some high quality comments too. I am interested to know more about how television or content watching might switch to online (through online players and catchup TV) and things like Netflix, and how that might affect revenues. For example, is online revenue less per minute of content than television revenue? Also, has anyone seen data on ITV Player's market share versus other online players?

This post is also interesting:

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janebolacha 5th Nov '16 38 of 43

In reply to post #157054


This article may go some way to addressing the questions you raise:

It is actually far more difficult, imo, for advertisers to get real value out of adspend online, compared to the return they get from linear adspend. People grazeview online, the purpose and the experience are different and it is far easier to simply skip or mute the ads. I know from my own experience of watching only online, including watching "live" television online and on the move via The rush to write off linear television suppliers with their armchair evening audiences is, imo, way too premature.

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janebolacha 28th Nov '16 39 of 43

Here is a report on a very serious study in Australia on the return on investment from advertising spend across different media for a number of international brands of FMCG.

"SYDNEY: The first results from the Payback Australia study by Ebiquity have found that every $1 invested in TV advertising generated a return of $1.74 for FMCG brands.

The world-first study has revealed that TV creates “by far” the best return on investment for fast-moving consumer goods (FMCG) brands in Australia, beating online video, online display, radio, press and outdoor advertising. TV was the only media in the study that generated a positive short-term revenue ROI for the nine participating FMCG brands, which include Unilever, Pfizer, Lindt, Kimberly-Clark, Goodman Fielder, Sanitarium and McCain.

According to the research, online video returned 72 cents for every dollar invested, online display 41 cents, print returned 79 cents, radio 71 cents and out-of-home 62 cents. Ebiquity also found that TV retains approximately 65 percent of its impact from the previous week, ahead of outdoor (28 percent), online video (23 percent), online display (22 percent), print (19 percent) and radio (17 percent). The results suggest that recall of TV ads is stronger and lasts longer than other media.

The nine advertisers, which collectively spend more than $200 million on advertising per year, gave Ebiquity access to three years of raw sales and campaign data. The study was conducted on behalf of ThinkTV, which was formed in May 2016 with founding members Nine Network, Seven Network, Network Ten and Multi Channel Network/Foxtel.

“Based on extensive econometric modeling, advertising on TV compared to other media types, has proven to be the clear leader for return on investment for the very large and important FMCG category,” said Richard Basil-Jones, chief executive of Ebiquity Australia & New Zealand. “The fight for every additional percentage point in product sales is a tough one for advertisers in the FMCG category, this rigorous Australian Payback study has proven that when it comes to advertising, TV is the leader for ROI.”

Kim Portrate, chief executive of ThinkTV, said: “The marketers that we talk to are trying to drive growth in really challenging conditions. One of the few levers to grow your business is media. Advertisers in the consumer packaged goods industry—covering pharmacy, liquor and grocery—know the importance of retailer in-store promotions but they also know it comes at a cost and is short-term. When it comes to advertising and driving sales, the Australian Payback study and other global studies continue to prove that TV leads the way.”

It concludes clearly that tv gives by far the best return to advertisers (more than double that from other media) and, by inference, that the switch now being observed of adspend to online media may well be a foolish fashionable way to spend advertising budgets..

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Dearg Doom 28th Nov '16 40 of 43

Hi Jane,

Thank you for bringing a quality large cap to our attention a few months earlier. The share has been on my watch list since then.

The current share price appears to offer a most attractive entry point given the p/e and the forecast earnings. Your additional reference note on the effectiveness of television advertising is well worth considering and strengthens the argument for television advertising and content which ITV obviously provides.

I'm almost ready to press the buy button. The only thing holding me back somewhat is the one-year share price chart, which seems to be pointing downwards over a one year time period.

If the name of the share had been blanked out for the share chart, would you consider buying this share if not bought already or would you wait for a lower entry point? Does the collective wisdom of the chart tell us the truth about the company's prospects?


Dearg Doom

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janebolacha 28th Nov '16 41 of 43

In reply to post #160136

Hi DD,

For me, it is a sound and well-managed company.

Advertising revenues seem to have dipped as advertisers became rather cautious following 23/6, as well as there being a continuing switch to online ads. However, consumer spending is actually doing very well and one would expect that dip in adspend to reverse itself. In addition, there is growing evidence that adspend online is much less effective than it's cracked up to be. Quite apart from platforms such as Facebook reportedly having declared viewing figures (in numbers and time) well in excess of the real ones, something which must have appalled companies which had already spent their budgets on those platforms, one knows from one's own experience that online ads are always invariably skipped or muted since online viewing presence is transitory and viewing behaviour ephemeral. People just do not watch ads online. I see evidence of advertisers waking up to the superiority of televison as a cost-effective advertising medium. That article I posted seems to be serious field evidence confirming this and I'd expect those FMCG companies and others to take serious note of the findings of that study and to revise budgets in consequence.

ITV is, in any case, much more than simply UK advertising, as pointed out in the article and in comments following, something the market seems to find hard to grasp.



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jonno 31st Mar '17 42 of 43

The share price seems to be gaining traction of late and I note that Goldman Sachs has increased it's holding to over 25%. The current issues with on-line advertising and odious content on some social media sites is positive for television advertising but I doubt this explains the recent firming of the share price.

My view is that ITV is a unique asset currently available at a bargain price. There is nothing comparable in the UK market with all due respect to STV. It generates a substantial amount of cash and pays good dividends. I suspect that a bid will emerge in due course but irrespective of this it remains too cheap at current levels.

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herbie47 31st Mar '17 43 of 43

In reply to post #178677

Yes I saw the late spurt around 4.20. There is some takeover speculation on the BBs.

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