LON:ITV | ITV - Priced For Armageddon?

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14th Nov '17 by jonno

23 comments 6404 reads

The update from ITV appears on the face of it to be reasonable with trading in line and an anticipated uptick in advertising, albeit subject to the now standard caveat regarding political and economic certainty in the UK.

Given the above, the negative reaction from Mr Market is somewhat surprising, with the share price down at around 144p at the time of writing. It may be that I have missed something, which would not be unusual, but the stock is now trading on a forward PE of close to 9, pays a good dividend and despite the increasing debt level is financially robust.

Thoughts and views of the Stockopedia community welcome.

As you might expect I hold ITV and am tempted to add at these levels.

Good luck to all

Jonno

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Jonno

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23 comments

matylda

14th Nov '17

If it sticks around this level for a week, one of the big boys may fancy it, if purely just for the content - Perhaps!

jonno

14th Nov '17

Added to existing holding at 144p, whether this turns out to be brave or stupid time will tell, but I think that the 'story' has improved, so even if the status quo had only been maintained the shares are inexpensive, in my view.

It will be interesting to see Carolyn McCall's strategy once she assumes the CEO role in the New Year. She did a good job at Easy Jet and has media experience from her days at the Guardian Media.Group.

jonno

6th Jul '18

ITV (LON:ITV) has ticked up nearly 5% this morning, which I suspect is due to the World Cup. The England v Columbia match had close to 24 million viewers. The World Cup is perhaps the cherry on the cake but as mentioned in earlier posts I think that even without the football, the 'story' is starting to improve. In due course the revenue from ITV Studios, currently around 42%, will exceed that from advertising and there remains the possibility of a bid.

In my view the shares remain undervalued, I hold and have recently added again, foolish or brave time will tell!

As always please DYOR.

Jonno

Leebod

6th Jul '18

World Cupyou say? Surely you mean Love Island!! Either way the recent momentum means I'll hold on to my holding for a while yet. Cheers.

Leebod

6th Jul '18

World Cupyou say? Surely you mean Love Island!! Either way the recent momentum means I'll hold on to my holding for a while yet. Cheers.

ISAallowance

6th Jul '18

News feeds are attributing the tick up today to a double upgrade from sell to buy from one of the brokers covering it.

Of course the underlying reason for the upgrade could still be the world cup and/or love island.

jonno

7th Jul '18

Hi ISAallowance

Interesting piece in the Times today that confirms the double upgrade. While Love Island is clearly a positive for viewing figures as labbey1 suggests, the Times article focuses on the benefits of the World Cup and estimates that England's progression to the semi finals could be worth as much as £25 million. Perhaps more importantly the reason cited for the upgrade is the view that the challenging advertising market endured by ITV (LON:ITV) is now improving with the first increase in advertising revenue since 2015 expected this year. There is also the anticipated strategy review to be announced by Carolyn McCall at the interims later this month and the outside possibility of a bid.

Jonno

Flackwell

11th Jul '18

The Love Island audience is the high spending one - its gotta help

jonno

19th Jul '19

Britbox launch announced. Must be a positive for ITV (LON:ITV), how much we shall see? As my only large cap I continue to hold and have added significantly at recent lows. ITV Studios is the main attraction but despite the fall in revenue there is value in free to air advertising. However what I think is unimportant it is the Market that will ultimately decide.

ambrosia

19th Jul '19

I'm struggling to raise enthusiasm for Britbox, its already a crowded market with netflix and amazon already entrenched, BT TV not doing very well despite having a fortune spent on it.

As far as I can make out Britbox is offering what is already available from iPlayer etc

Netfix already has a lot of BBC stuff, but their share priced tanked yesterday because of slowing growth of new subscribers

Britbox, I dont get it

jonno

19th Jul '19

Hi Ambrosia
I appreciate that ITV (LON:ITV) is not flavour of the month; also how much value Britbox will eventually provide is unknown, but presumably it must be a positive. As for Netflix it makes no money, carries large debt, has negative cash flow and pays no dividend, so I can't see the investment attraction. i would much rather own ITV (LON:ITV) on a current PE of 8.5 and a dividend yield of 7%, or thereabouts than £NFLX where the current PE remains 100 plus.

I agree that Britbox has many hurdles to cross if it is to be a success. I assume that over time the ITV/BBC content that is available via Netflix will reduce and future British TV blockbusters and successors to Poldark, Line of Duty, the Body Guard etc, much of which were made by ITV Studios will be exclusive, initially to Britbox.

All the best

Mark L.

20th Jul '19

Hard to get excited by Britbox (also an awful name BTW). How much appetite do consumers have for yet another subscription service at £5/£10/£20 a month or whatever? Still,it's better than nothing and -who knows - perhaps long term you'll see things like Britbox being an option add-on to a netflix sub. Or vice versa.

I've been a holder of ITV for the past few years. My worse performing recent investment, with only decent dividends mitigating a large paper loss. It looked good value back then and even better value today. Fat lot of good that value investing argument has done me though!

Nick Ray

20th Jul '19

My guess is that sooner or later the license in its current form is going to have to be phased out. It relies on an "honour" system which causes a lot of difficulty. The obvious solution is to move to an encrypted service and sell subscriptions - but how do you migrate to that? Well, perhaps Britbox is the start of that process.

jonno

20th Jul '19

Snap, I have held ITV (LON:ITV) for more than 2 years. It is the worst performing share in my portfolio at a current loss of about 30%. I failed to appreciate the disruptive impact of the internet and Brexit on advertising revenue. I should have sold when the share price was close to £2 in summer 2017, still I have received some generous dividends which have helped mitigate the capital loss.

I believe there is significant value in the company at the current price, especially ITV Studios and significantly increased my position at 105p. ITV (LON:ITV) has committed to a dividend of 8p for 2019, which gives a yield of about 7%.

I have no crystal ball but given the investment metrics it is not difficult to make a case for a bid. Robbie Burns also takes a similar view, but off course we could both be wrong. Current trading and the Brexit outcome will in large part determine the near term share price movement. We will have a better idea come next Wednesday's interims.

Fingers crossed!

Provided the trading does not deteriorate further

xcity

21st Jul '19

My problem with Britbox is that it is going to eat substantial capital over the next few years, with no clear idea of when (or whether) it will make a profit. At a point in the cycle when advertising revenue is likely to be turning down. I've thought it might be cheap any number of times (since the mid 200s) but might has never turned to belief when I looked at the accounts and prospects.

ambrosia

22nd Jul '19

"My problem with Britbox is that it is going to eat substantial capital over the next few years, with no clear idea of when (or whether) it will make a profit"
the Britbox split between ITV and BBC is 90% ITV. if sucessful the BBC has the option of increasing their stake to 25%, but basically ITV is taking all the risk

jonno

24th Jul '19

Creditable interims from £ITV with a lesser decline in advertising revenue than the company and it appears the market expected. Trading is challenging but £ITV is at present making the best of a challenging trading environment and importantly has a clear and coherent strategy overseen by an able CEO in Carolyn McCall.

Trading in line with expectations the shares are currently on a PE of 8.5 and yield of 7.5%. with good cash conversion of 80% plus. in my view the shares continue to be under appreciated and hopefully with time the market will also start to think so.

jonno

1st Nov '21

Well, since my last post on Itv (LON:ITV) much has happened, in particular the pandemic when share prices collapsed across the board. Itv (LON:ITV) hit 50p or thereabouts and I had the good fortune to add a reasonable amount at 59p, which I sold at around 112p to reduce my position to a more comfortable level of portfolio weighting. Clever me? Perhaps, perhaps not!

Itv (LON:ITV) is now one of my smaller positions although I still hold a reasonable amount, partly due to the despondent share price and partly due to the overall performance of the portfolio, which thanks to the vaccines has been good. I would add that my initial foray in Itv (LON:ITV) at £2 plus was ill timed and misjudged , but hopefully I have learnt.

Back to the present. I continue to have difficulty in comprehending why Itv (LON:ITV) is valued on a forward PE of less than 8 or put another way an earnings yield of 12%, based on 13 pence of earnings for this year. This is a company that is:

Financially robust and unlike many did not raise equity during the pandemic
Has a successful production company in ITV Studios, producing blockbusters like Line of Duty and the Bodyguard
Has an extensive and valuable back catalogue
Will shortly resume attractive dividend payments; 3.3p has been indicated for this year, with 5.5p or thereabouts pencilled in for next year.

It strikes me that the current share price would likely be higher without advertising, despite it providing roughly 50% of its revenue.

However what I think doesn't matter, it is what the Mr Market is currently prepared to pay. At some point, unless the share price dramatically improves it will be involved in M&A, albeit the patience of Job is required in the meantime.

I may off course be deluded and missed the rampaging elephant in the room, but for the life of me, bias or no bias, I can't see it.

Answers on a postcard please?

All the best

Metatron

1st Nov '21

ITV has become a fanatically 'woke' company.If it was not a potential takeover target i would like to make money out of shorting it

jonno

1st Nov '21

Hi Metatron

Can you explain what you mean by a woke company please.

As for shorting I will leave that to your judgement.

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ITV - priced for Armageddon?

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Jonno

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