Super Stock: Why I Think The Picture Is Improving At ITV

7th Jan by Roland Head

8 comments 1353 reads

UK commercial television heavyweight ITV (LON:ITV) is often seen as a potential takeover candidate.

In recent years it has also often been described as a serial underperformer, battling structural headwinds from changing market conditions.

I think this view is too simplistic, overlooking the strategic progress the company has made and its impressive reach among UK viewers.

After a multi-year period of transition, I think the additional investment made in content production and digital operations should soon start to bear fruit.

I’m also optimistic that more favourable industry conditions should support a return to growth over the next 12 months. Against this backdrop, I think the stock’s modest valuation, high yield could provide an appealing entry point for investors.

Full disclosure: I own shares in ITV.

Summary

Pros:

Modest valuation with improving outlook
Strong quality metrics and large share of UK market
Opportunity for significant growth in US content production market
Takeover potential, with ITV Studios potentially valued in excess of current market cap

Cons:

Terrestrial broadcast television is in decline and ITV must keep hold of its viewers as they move online
Streamers present a competitive threat that didn’t exist 10 years ago – can ITV maintain its share of UK eyeballs?
No guarantee of a takeover; the necessary split could leave ITV’s UK operations with diminished earning power
ITV could end up becoming a value trap!

Profile

About the stock

ITV is a television broadcasting and content production company with operations in the UK, Europe and USA. It’s listed in the Media & Publishing industry group, within the Consumer Cyclicals sector.

The stock dropped out of the FTSE 100 in 2022 but remains a FTSE 250 member, with a market cap of £2.8bn and a recent share price of 73p.

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Despite its lacklustre share price performance over the last few years, the StockRanks have a positive and improving view of ITV – a view I share:

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This broad mix of positive quality, value and momentum are also reflected in the company’s Super Stock styling:

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About the opportunity

ITV has always been a cyclical business. A…

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Cricketfan

8th Jan

ITV (LON:ITV)

Thanks Roland. That is a really comprehensive report that I need to read a second time. Just one question. Given Trump’s first term track record as a guide, would ITVs product be a likely tariff target ?

bsharman

Thanks Roland for writing this comprehensive article. Do you think ITV (LON:ITV) would/could takeover STV (LON:STVG) or would the CMA block it. STV also have a growing production arm. Also, I see that ITV is producing Destination X, which many commentators are saying could be the new Traitors!

Pat W

Probably not. They own US production companies and facilities.

Roland Head

Hi bsharman,

Interesting question. I don't know how the regulators would view such a situation.

All the other independent regional broadcasters have ultimately consolidated into ITV (LON:ITV) historically - I don't know if there's any reason why STV (LON:STVG) couldn't do so too.

I have to admit I haven't seen Traitors or Destination X, so can't comment!

Roland

Funderstruck

Thank you Roland for your very detailed analysis, nice to have confirmation of a holding. I bought back in November for the content production side of the business & the dividend. When channels started to multiply into such ridiculous numbers it was obvious that demand for content would be high, i bought into a thriving firm which was eventually taken over, found nothing suitable to replace it until last year when the ITV price looked more attractive.

Your comprehensive company and market analysis is much appreciated and a regular must read for me, thanks again.

timarr

Good article Roland.

I don't expect any takeover movement on ITV (LON:ITV) until Ofcom reports on Public Service Broadcasting in the summer. The PSB requirement acts as a disincentive to a takeover, as does the Liberty Media stake.

ITV have threatened to walk away from their PSB role (several times, in fact), but that carries risks in terms of market prominence, which is guaranteed by the status. But it would definitely open them up to M&A.

I hold.

ezlifeme

Hi bsharman, doing my own research as usual - Destination X is to be broadcast on BBC apparently, produced by Twofour production company who were founded by ex BBC staff, bought out by ITV. They produce content for many broadcasters . https://www.bbc.co.uk/showsand...

sparkler

9th Jan

As a VERY long-term holder of ITV (LON:ITV) I had to have an ironic chuckle to myself when I read your list of 'pros' and 'cons', Roland. You said that "ITV could end up becoming a value trap". Well if this stock is not already the very definition of a "value trap" I don't know what is? Just look again at your share price chart and the relentless slow decline from over 250p to today's 70p over nearly ten years. In fact the share price was also at 250p about 25 years ago!

Don't get me wrong, I like your article above and as a stale bull I still believe in the buy case that you outline. The trouble is that many of the arguments being put forward were exactly the same ones ten years back e.g. the value of the studios business, strong advertising market share, low valuation etc. Unfortunately there have been so many headwinds in this market with the ever increasing proliferation of streaming channels and competition for advertising sales from new areas like podcasts and social media that the bull case has been completely eroded no matter where ITV focuses its investment.

However, I am going to ignore what logic is telling me and continue holding the stock because of the compelling price of what is still a valuable strategic media asset -I hope! I also have to say that I disagree with timarr that the Liberty Media stake is a disincentive to a takeover. They have held this stake (bought at much higher levels incidentally) for many years now without doing anything with it. I am sure they could be persuaded to pledge their holding to any would be buyer and act as a springboard to an offer.

Anyway, to any Stocko investors who get drawn to this idea, I shall welcome you to the Club and look forward to discussing in another ten years why these shares are even better value at 50p!!!

Super Stock: why I think the picture is improving at ITV

Summary

Pros:

Cons:

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Roland Head

8 comments

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