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ITV^ (ITV, Hold at 71p) - On the block?
ITV PLC
ITV^ (ITV, HOLD from BUY at 64p) - Two steps forward....
ITV^ (ITV, Buy at 74p) - Q3 update
ITV^ (ITV, Buy at 84p) - H1 results - headline beat
ITV^ (ITV, Buy at 83p) - H1 results preview - A Euros winner?
Media sector comment - TV - the advertiser's friend
ITV^ (ITV, Buy at 71p) - Post results upgrades
ITV^ (ITV, Buy at 61p) - Robust full year results
ITV^ (ITV, Buy at 61p) - Better times ahead?
ITV^ (ITV, Buy at 66p) - Headwinds drive downgrades
ITV published a consensus-beating Q3 trading update but not from the division it should have come from, explaining the strongly negative share price reaction. Specifically, the growth came from ITV studios (which is better assessed over a longer time frame) while advertising revenue came in below expectations despite the Rugby World Cup (that propelled the revenue of the French peers notably). The outlook is weak due to a challenging environment for advertising while the guidance has been lowered for ITV Studios.
ITV^ (ITV, Buy at 66p) - Q3 trading update - external headwinds
1H figures highlight ad pressure, though 3Q should be better given stronger TV/sports events/releases. No material FY EPS changes expected at this stage. Hold/underweight given macro/cyclical concerns near term and more structural longer-term issues for linear TV. Multiples based PT 80p (u/c).
ITV^ (ITV, Buy at 70p) - Interim results
ITV^ (ITV, Buy at 70p) - All3 reaction
There was no surprise on the trend in the Q1 23. The decrease in total advertising revenue and ITV Studios on constant currency was compared to high comparatives last year. Total digital revenue surged by +29% including strong digital advertising growth (+30%). There is no reversal of total advertising revenue expected in Q2 23 (-12%). The 2023 guidance was confirmed for ITV Studios with mid-single digit revenue growth and an adjusted EBITA margin at the low end of 13-15% of revenue.
1Q figures are in line overall. Outlook for ad revenue (TAR) in 2Q is worse than we expected and slightly below consensus, implying some modest downside risk to forecasts, though 3Q should be better given programme/event phasing. Hold/underweight given macro/cyclical concerns near term and more str
ITV^ (ITV, Buy at 77p) - Q1 update
FY2022 was in line with expectation. Total advertising revenue was down -1% and ITV Studios revenue increased by +19% o/w +14% organically. Digital revenue was up +18%. The lower adjusted EBITA margin (19% of revenue, -5pts) was due to higher content costs (+5%) and infrastructure and overhead costs (+9%) in Media & Entertainment. The start to 2023 has been challenging for total advertising revenue (-11% expected in Q1 23). Revenue growth and margin improvement are expected for ITV Studios in 2023.
FY22 figures slightly better overall with positive comment on new digital initiatives, though advertising guidance for the first 4 months is below consensus and our expectations, especially April. Pre meeting, no material forecast changes expected. Hold/underweight - given macro/cyclical concerns n
In 9m 22, total advertising revenue decreased by 2% including a weak September 2022 (-14%). ITV Studios performed well with organic revenue up +13% in 9m 22. For 2022, total advertising revenue should decrease by -1/-1.5% given the broadcasting of the Football World Cup in Q4 22 and ITV Studios’ revenue should exceed the 2019 level. ITVX (AVOD/SVOD) is a key driver for digital revenue. The full launch of free content (>10,000 hours) is due on 8 December 2022.
We update forecasts post ITV 9M figures today. EPS downgrades are relatively modest this year but heavier than we indicated in FY23E at -16% as we cut TV ad revenue assumptions (TAR) as well as margin. Remain Hold/under weight - given macro/cyclical concerns near term and more structural issues for
3Q/9M figures are roughly in line with forecast or slightly worse, especially in digital given macros. Outlook comment is also slightly worse than we expected for 4Q/FY ad revenues (TAR) this year and next year's TV/M&E margin with no material comment on 2023 ad revenues (as expected). Forecast
Media - Trading Comment - ITV ITV^ (ITV, Buy at 71p) - Robust interim results
TAR outlook slightly better, Studios margin worse
Q1 22 was strong in each division. Total advertising revenue increased by +16% as expected and digital advertising surged by +27%. ITV Studios revenue grew by +24% at constant currency thanks to strong deliveries of programmes. Total advertising revenue growth is expected to be +5% in H1 22 due to a tough comparative in Q2 22. ITV Studios benefits from the high demand for content and is confident on its performance in 2022. The launch of ITVX is confirmed for Q4 22.
ITV recently presented its digital initiatives to 2026 following its FY results. We have now had a chance to model the new strategy, which involves the launch of a new AdVoD and SvoD platform ITVX, and consider our recommendation in the context of the new figures, risks, and potential rewards of the strategy. The FY21 results themselves delivered a small beat on EBIT but the outlook and strategy exposition were more significant. Having reviewed our recommendation in this context we downgrade to Neutral. ITVX launch to weigh on profits for a while As part of its FY update the group announced new steps in its digital strategy, which involves the launch of ITVX, an ADVod and SVoD platform due to launch in Q4''22. Through this new strategy the group plans to add GBP375m revenues by FY26 with the profit contribution only expected for post FY26. By 2026, the group expects the incremental annual revenue to cover the incremental annual investment cost of ITVX. TAR Outlook comments supportive The group''s total advertising comment was much more bullish than consensus had anticipated as it guided for Q1 TAR of c16% (vs cons at c10%). January was called up 15%, February up 20% and March up around 13%. The group concluded that early indications indicated total advertising revenue would be up c10% in April which has strong comparables in 2021, due to the economic rebound. Downgrade to Neutral We update our model for FY21, implement the group''s new reporting structure and reflect the ITVX plans in our numbers. We downgrade today to Neutral. With massive investments in MandE and the divisional EBITA only back at 2021 levels beyond 2026, we see the risk reward at current levels as fair with our target price cut 36% to 93p. Our Studios estimates remain broadly unchanged.
We fundamentally agree that ITV needs to build new growth Media and Entertainment (TV) revenues to offset longer term linear TV structural challenges. However, new Phase 2 digital investment hits profit hard near term and the 5-year payback period is longer than we expected. Meanwhile, global GDP a
ITV had a strong 2021 year with total advertising revenue growth of +24% and studios revenue growth of +31% organically. The adjusted EBITA margin increased to 24% of revenue (+3pt). The advertising market has been strong since the start of the year 2022 according to ITV (+14% expected in January-April 2022). Conversely, the acceleration of the development of digital revenue (£750m by 2026) with the launch of ITVX implies higher content investments that should weigh on the operating margin in 2023-24.
FY as forecast. New digital targets
Last week we hosted CEO Lindsey Clay and Director of Research and Planning Matt Hill of Thinkbox, the commercial TV marketing body in the UK and learned how TV has undergone a renaissance since the pandemic. UK TV advertising revenues up 20-25% in FY21 We learned that the UK TV advertising market was up 20-25% in FY21 (official numbers not yet out) and positive momentum continued in Q1, with comps relatively easy. For FY22 Thinkbox''s shareholders target a flat to slightly positive market, which should be helped by the World Cup, which for the first time will take place in Q4. During the pandemic, TV has also benefitted from other sectors'' weaknesses, e.g., OOH and Cinema, a trend that is expected to reverse this year. Online-born brands are a key growth driver While most advertising categories contributed to the growth of TV, a notable push came from online-born brands that make up c20% of the TV advertiser revenue mix today. The category grew 42% in 2021. Government spend was cGBP330m in 2020 (out of a market worth cGBP4bn). Similarly, to other media channels, TV has experienced price inflation in 2021. More and new advertisers on TV 600 existing TV advertisers increased their TV spend in 2020 and 140 of them increased it by GBP1m+ pointing to TV advertisers'' loyalty. 89% of these 140 stepped up spend again in 2021. Pre-campaign booking times have been abolished on the broadcaster end since the pandemic. While this was an operational challenge for the broadcasters, it has led to a range of smaller more tactical advertisers entering the TV ad space. Finally, Thinkbox suggested the multiplier effect of TV with other media explained the growth in TV, providing various case studies to support this. BVoD viewing platform based Clearly some of the TV viewing decline is offset by Broadcaster-VoD viewing, which is more platform agnostic, e.g. 35% of Love Island viewing was on platforms or mobiles.
ITV^ (ITV, Buy at 116p) - Full year results preview
TV near term momentum vs. midterm questions
Confirming 3Q upgrades. ITV Commercial CMD
Studios surprised in Q3 Q3 Media and Entertainment revenues reached GBP566m, driven by TAR, which in Q3 came in at 30% with July up 68%, August up 24% and September 16% compared to the same period in 2020 and thus in line with consensus. Studios beat expectations and reached GBP39m, up 43% yoy. Also, VoD advertising kept its Q2 pace and grew by 54% in the quarter. Outlook comments - programming costs higher next year The group guided TAR to 11-13% in Q4, a meaningful uplift vs the flattish expectations. Within the mix, October is guided to be up 17%, November 12% and December 5-10%. Exceptional items for the FY are expected to rise to GBP170m from GBP150m and the negative FX impact on Studio revenues increasing from GBP38m to GBP50m Regarding FY22, the group now expects programming costs of GBP1.16bn Reiterate Neutral and EPS rises on the back of advertising Our estimates rise on the back of the better-than-expected advertising performance for Q4. We also raise NAR from -1% to 1.2% going into 2022, which we think will be helped by inflation. Advertising''s high drop-through boosts the EPS upgrade. In MandE we also update the programming costs for FY22 and keep other costs flat. Our Studio revenues benefit from the better-than-anticipated Q3 results.
ITV had a strong performance in 9m21. It included strong total advertising revenue growth in Q3 21 (+32% vs -7% in Q3 20). The outlook is positive for Q4 21 with advertising revenue growth estimated at +11-13%. ITV Studios revenue growth (+32% in 9m21 vs +26% in H1 21) was driven by the delivery of programmes in the UK and international markets and higher revenue from streaming platforms. Q4 21 should benefit from the strong pipeline of programmes.
ITV’s interims, which exceeded market expectations, detailed a strong performance and provided a positive assessment of prospects for H2 thanks to a buoyant ad. spend backdrop and strong underlying demand for content. We have raised our FY21F adj. EPS estimate by 10% in response and have moved our recommendation from HOLD to BUY following a period of share price weakness and based on a fair value estimated of 155p.
Updating post 1H figures
Strong performance across all divisions in H1 At GBP1548m, Group revenues beat expectations due to an equally strong performance from MandE and Studios and so did group EBITA at GBP327m. TAR in H1 was up 29% with May up 87% and June up 115% compared to the same period in 2020 - a touch ahead of expectations. Studios performed relatively well due to US content and early deliveries. Growth in VOD advertising was strong at +55% in H1, even after double-digit growth over FY20. TAR outlook confident as we go into autumn Total advertising revenues in July are expected to be up 68% and August up 17% to 20% yoy. No comment was made about September, which in a normal year makes up 40% of the quarter (although this year July compensates to some extent due to the football). We note that the comps in September remain relatively easy (-2%). Reiterate Neutral but raise TP We update our model for Q2 and upgrade our TAR expectations for the FY. Within the mix of MandE we lower our DTC estimates on the back of a softer H1. We keep our Studio estimates broadly unchanged. In line with the estimate upgrade driven by the ad expectations (12% NAR for the FY), we raise our TP to GBP133p.
TAR good/better. Studios phasing boost in 1H
Tweaking TAR
Q1 21 was characterised by opposing trends at ITV Studios and advertising. Revenue recovered at ITV Studios (+9%), while advertising decreased (-6%) due to a high comparative last year and continuing COVID-19 restrictions in the UK. Total advertising revenue turned favourably in March 2021 (+8%) and the positive trend was confirmed in April 2021 and until the end of H1 21 (+26% estimated vs -20% in H1 20).
Q1 in line with expectations Total external revenue reached GBP709m, up 2% yoy and broadly in line with expectations. Total advertising was down 6% (in line with the guidance) over the 3 months to the end of March with January down 9%, February down 15% and March up 8%. Total ITV Studios revenue was up 9% at GBP372m. Online revenues rose by 14%. Advertising outlook comments supportive Total advertising in April was up 68% (with the 4 months to the end of April up 6%) vs a previous guidance of up 60-75%. May is estimated to be up c85% and June up between 85%-90% yoy, benefiting from the Euro 2020 Final and Love Island. Pre Q1 consensus had expected Q2 TAR to be up c66% and for the FY consensus had 7.1% NAR and TAR at 8.3%. The group reiterated its GBP30m cost saving target for 2021. Reiterate Neutral, minor estimate changes We nudge up our advertising forecasts for the FY. We are now expecting Q2 to rise by 80% and for the FY forecast TAR to be 9.2%. This is almost entirely offset by a slightly more cautious view on other broadcasting costs. Our Studios estimates and TP remain unchanged. While we expect ITV to benefit from the advertising rebound in the UK, we remain more bearish on the medium- to long-term structural drivers of the industry and reiterate our Neutral rating.
1Q roughly as expected. 2Q advertising looking good
2Q looking strong. 2H still unclear.
We were encouraged by ITV’s performance against a very challenging backdrop during FY20A and, notwithstanding on-going uncertainty around COVID-19, expect the current year to bring better times for both sides of its business. That said, we estimate a fair value of 126p based on our updated forecasts and see limited scope for share price appreciation following a strong run (+89% over six months). We recently moderated our recommendation from BUY to HOLD and continue to view STV^ as a significantly more attractive option within the TV broadcast and production space.
In Q4 20, total advertising revenue turned positive (+3%). In 2020, based on a 16% decrease in revenue, the group’s adjusted EBITA (£573m, -21%) was above expectations and represented a margin rate of 21% of revenue (-1pt). ITV benefited from the reduction in programming costs and significant cost savings in both divisions. For 2021, total advertising revenue increased in March after two negative months. ITV Studios should continue to be impacted by COVID-19 restrictions and additional related costs.
Updating figures post FY20
FY20 results marked by better Q4 ad trends FY group revenues came in at GBP2,781m with Broadcast at GBP1,890m and Studios GBP1,370m. TAR was down 11% but similar to other broadcasters benefitted from a stronger Q4. Network costs came in at GBP935m helped by less high end programming /sports in a Covid year. Group adj EBITA reached GBP573m with Broadcast at GBP421m and Studios at GBP152m. No dividend was announced. Net debt improved to GBP545m. Britbox in line with the plan according to management Britbox counted c500k subscriptions in January. Combined SVoD subs reached 2.6m (vs 2019 at 1m in the USA and ITV Hub over 400k). In 2020 Britbox losses came in at GBP59m and a similar loss level is expected for 2021 as the group plans to invest in more original content for the platform. Outlook suggests short term costs to be higher Q1 advertising revenues are guided to be down 6% with January down 9%, February down 15% and March up around 8%. April is expected to be up 60-75% as of today, with government spend down month on month in the April estimate. No news on the unhealthy food (HFSS) regulation. The group also guided to cGBP100m of annualised permanent overhead cost savings by 2022 (from 2019), (vs prev. guidance of GBP55-60m). This should be partly offset by the unwind of some Covid related savings and continued investment in the business. The programming costs are guided to cGBP1.1bn driven by the Euros, new drama and Love Island among others. Reiterate Neutral We update our model for FY20 results and now forecast 7.6% TAR for FY21. However, EPS fall due to higher expected losses mainly at Britbox and minor investments in Studios. Despite our EPS cut our TP rises due to our more bullish view on the long term margin development of broadcast. Our SOTP multiples remain unchanged.
Costs and cash better
ITV’s share price has appreciated by 70% since we moved our recommendation from HOLD to BUY in May 2020, enjoying a particularly strong run over a six-month view during which it has outperformed by >50%. We believe that this performance has taken the group’s stock into fair value territory, particularly as we are cautious on national advertising spend ahead of next month’s finals (date TBC) and have been a little disappointed by progress in energising content production and digital revenues to date. On this basis, we have decided to moderate our recommendation from BUY to HOLD.
PACT’s newly published TV Exports report flags record international revenues for UK TV content producers and strong growth in the key US market. This data supports our view that international markets offer significant upside potential for both ITV and STV. Despite recent share price strength, we believe both stocks offer attractive upside potential (with the possibility of upgrades as the COVID backdrop improves an additional positive). We retain our BUY recommendations on both, although STV remains a higher conviction call.
ITV PLC STV Group plc
9m results in line with expectations 9m group revenues reached GBP1860m (down 16%) and were in line with consensus. Broadcast revenues were down 13% at GBP1270m, with ITV total advertising down 16% (vs cons -17%) and online revenues up 2%. Total ITV Studios revenues were down 19% at GBP902m. Confident outlook on advertising but Studio guidance less so The group''s advertising outlook was confident, with total advertising down 1% in October and expected to be up c.6% in November. Management suggested that the current Covid restrictions in England had only had a limited impact for now. On the flipside, despite having resumed Studio activity the delay to productions, further national lockdowns, social distancing and other COVID-19 measures are expected to impact revenue and margin in Q4 and also into 2021. Raising estimates and TP, Reiterate Neutral We update our model for Q3 and are now forecasting c3% advertising revenue growth in Q4. This higher margin revenue stream more than offsets our more cautious estimates on Studios. All in all, our TP rises proportionally more than our EPS as we adjust our ERP to 8% from 9% previously (in line with Exane estimates) and raise our multiple on Studios to reflect the higher share of IP rights vs peers.
In Q3 20, the decrease in total advertising revenue slowed significantly (-7% vs -43% in Q2 20, of which -42% in June). For Q4 20, ITV is expecting a slight increase yoy, assuming no prolongation of the containment into December. ITV Studios’ revenue dropped by 19% at constant currency in 9m19 (vs -17% in H1 20). The return to full capacity is challenging due to the second lockdown so that both revenue and the EBITA margin should be impacted in Q4 20.
With COVID-19 overshadowing the short-term outlook for marketing budgets, we thought it would be useful to revisit a potentially lucrative opportunity for UK listed TV companies, namely, content production. Our conclusion is that demand from multiple sources offers significant growth potential for both ITV and STV as well as the opportunity to dilute cyclical advertising revenues. Both companies are currently trading on modest valuation ratios, suggesting that short-term caution on advertising spend is priced-in. We have BUY recommendations in place on both stocks, but STV remains a higher conviction call.
Total advertising revenue dropped by 43% in Q2 20 and ITV Studios was affected by the stop in production. The adjusted EBITA margin collapsed to 14% of revenue (-8pts yoy) despite the reduction in the cost of programmes by £77m and overheads cost savings of £51m over £60m targeted in 2020. There is no guidance for Q3 20 and FY2020. The negative trend in advertising was reduced in July 2020 (-23%). ITV Studios restarted production in June 2020.
We were encouraged by the better than expected revenue and EBITA performance, robust financial position and tentative signs of improvement highlighted in ITV’s interim results release. We have gently upgraded our adj. EPS forecasts (+3% for FY20F) and although on-going uncertainty around COVID-19 makes it difficult to identify an immediate share price catalyst, we believe it stock offers good medium-term upside potential. BUY.
H1 results saw a beat in EBITA, driven by better cost savings in broadcast H1''20 total advertising declined 21%, leading to group revenues of GBP1218m. EBITA, at GBP165m, beat expectations, driven by better cost savings in Broadcast and mostly non-recurring overheads (o/w GBP10m recurring). Studios declined 17%, with Studios US up 9% yoy. Direct to Consumer grew despite the emergence of competing streaming offers during lockdown. All in all, this resulted in H1''20 EPS dropping 53% yoy, though it was 26% ahead of consensus thanks to cost-cutting measures. August ad trends much better and mid-term prospects for Studios promising Total advertising is guided to be down 23% in July but management suggested August was materially better. No advertising guidance was provided beyond that. Management remained confident that the global content market would grow 3-5% annually in the mid-term, which should be supportive for Studios. The margin target for Studios of 14-16% remains in place but is likely be out of reach for at least the next two years according to management. Programming cost was guided to only GBP960m for 2020, followed by normalisation next year. Britbox continues to roll out in Australia Currently Britbox UK is present on 60% of available platforms. It is now also due to be rolled out in Australia, funded by US profits. The first Britbox drama is due to launch in H2. For 2020 management expect BritBox venture losses to be cGBP55-60m. Minor estimate changes Having included the various modelling assumptions and H1 numbers into our model, our 2020e EPS barely changes. We take a more cautious view on costs going into 2021 which drives our TP cut today to 68p (from 75p). We reiterate our Neutral rating.
We believe that ITV should be a significant beneficiary of a recovery in advertising spend as COVID-19 lockdown measures are relaxed. Based on our revised forecasts, which admittedly incorporate a greater degree of risk than under “normal” conditions, we regard recent share price weakness as overdone, see significant upside potential and are reinstating our (previously under review) BUY recommendation.
In Q1 20, total advertising’s revenue (+2%) was in line with expectations and ITV Studios’ revenue (-10% organically) was impacted by the stopping of production since mid-March 2020. Advertising deteriorated in April 2020 (-42%) due to the lockdown and the cancellation of advertising campaigns. This may be a bottom considering the resumption of economic activity by the end of H1 20. ITV confirms cost savings, the reduction of capex and the cost of programmes.
In 2019, total advertising was better than expected and decreased by -1.5% (vs guidance of c.-2%). Lower group adjusted EBITA margin was attributable to Broadcasting, which had to support higher investments in the businesses, including the launch of BritBox UK, which were not completely offset by cost savings. The outlook for 2020 is uncertain due to the Coronavirus outbreak. Essentially, there should be a significant negative effect on TV advertising.
ITV’s share price has fallen by almost 40% over the last month and by 26% since the publication of its FY19A results on 5 March. The latter provided a cautious assessment of advertising spend during Q2 and the potential impact of COVID-19 remains uncertain. That said, we have downgraded our FY20F EPS estimate by 9% to reflect this situation and based on our current information set, believe: that this de-rating has been overdone and; that the group’s resultant valuation (FY20F P/E and DY ratios of 7x and 9%) is already factoring in a high degree of caution on current year forecasts and, importantly, is no longer a fair reflection of its medium-term growth potential. We therefore upgrade our recommendation from HOLD to BUY.
ITV’s recent “meet the management” event offered a useful insight into progress across several areas of focus as it seeks to unlock organic growth potential. Overall this was an encouraging session and we remain positive on the group’s fundamentals. That said, we believe that its current stock valuation is a fair reflection of its prospects.
The decrease in total advertising revenue slowed in 9 months 19 (-3% vs -5% in H1 19), reflecting a positive trend in Q3 19 (+1%) and corresponding to the high range of guidance (-1/+1%). Online revenue grew significantly (+23% in 9 months 19 vs +18% in H1 19). As expected, ITV Studios benefited from high deliveries of programmes, in particular from ITV America. The 2019 guidance is confirmed and a dividend of at least 8.0p/share was reiterated.
In our latest thematic comment on the Media sector we have decided to look at one of its most dynamic subsets - the video streaming market. In this report we highlight the burgeoning array of services available to consumers, compare their competitive strengths and assess implications for free to air broadcasters. Our conclusion is that developments in this area will accelerate change, creating challenges but also considerable opportunities for incumbent players. Focusing on our coverage companies, we regard ITV’s stock as fairly valued ahead of evidence that its refocused strategy is bearing fruit but believe that STV offers attractive upside potential reflecting our expectation of a significantly stronger EPS and DPS progression and progress in positioning itself to pursue growth opportunities in digital and production.
The purchase of Arqiva’s telecom towers business for £2bn highlights the potential value of ITV’s SDN business, which runs one of the digital terrestrial TV multiplexes and which we value at £750m-1bn, or up to c. 20% of ITV’s market cap, while representing < 7% of profits.
In these five videos Liberum's Media Analyst discusses the possible sale of ITV's terrestrial multiplex operator SDN. In brief Ian discusses the note, explains what SDN does, how much ITV could raise from the sale, the risks for a potential buyer and what ITV could do with the proceeds.
Strategy Update, Ascential Video, ITV, SThree, Real Estate Credit Investments, AFH, Market Highlights
ITV STEM RECI AFHP JDW AIAPF
Last year ITV announced that it would sell off its South Bank site, rather than press ahead with a redevelopment, a move that press reports have suggested could raise £150m. If it wanted to raise further funds, another option would be to sell off its SDN business.
We have trimmed our forecasts to reflect a more cautious stance on the outlook for national advertising during H2 FY19F and believe that ITV’s stock has now moved into fair value territory following a 17% share price rise over the last month. We have therefore decided to moderate our recommendation from BUY to HOLD and regard STV^ as a considerably more compelling option in the broadcasting and content space.
ITV Video, DP Eurasia, Futura Medical, Galliford Try, Market Highlights
ITV FUM STMPA UTG CRST SRC GFRD D5P 8D9
In these four short videos Liberum's Media Analyst Ian Whittaker discusses his raised Target Price to 180p from 145p, as Ian switches back to valuing ITV on a DCF basis and not an adjusted PE multiple. Ian also discusses the potential for an end to the advertising downgrades, if the Government chooses to spend £100m on advertising for a No Deal Brexit and that ITV is likely to benefit significantly in Q4.
We raise our Target Price to 180p from 145p, as we switch back to valuing ITV on a DCF basis and not a adjusted PE multiple. There have been no change to our forecasts and we feel (famous last words) for 2019 at least, there may be an end to the advertising downgrades and, if the Government does end up spending £100m on advertising for a No Deal Brexit, ITV is likely to benefit significantly in Q4.
As expected, ITV’s interims reflected a tough advertising backdrop but also showed encouraging progress in other areas. We expect an improved H2 performance despite ongoing macro uncertainty and continue to view the group’s stock as modestly valued. BUY
Total advertising revenue decreased at a lower pace than expected in H1 19 (-5%, o/w -7% in Q1 19) and the trend should be -1%/+1% in Q3 19 despite the still uncertain economic and political environment in the UK. The other positive news was additional cost savings identified (£20m) to the initial £35-40m announced in 2018 and the confirmation of a dividend in respect of FY2019 of at least 8.0p/share.
In these five short videos Liberum's media analyst Ian Whittaker discusses the key drivers in his upgrade on ITV, with a particular focus on ITV1’s advertising revenues, the secular outlook for ITV 2, 3 and 4 and if ITV is an M&A target. Click here to read the report. Click the image below to watch the videos.
Netflix reported Q2 numbers yesterday where there was a massive miss vs subscriber forecasts. Netflix gained 2.7m subs in Q2 vs guidance of 5m, with US subs down slightly by 0.13m to 60.1m, impacted by price increases and aggressive competition from the 100% owned Disney OTT platform Hulu.
We upgrade our recommendation to BUY from Hold. We have not changed our forecasts or our Target Price but, with the shares now 25% below our TP and 40% below our DCF valuation, we feel the correction has been too drastic especially as ITV’s secular position is better than the market thinks.
In these five short videos Liberum's Media analyst Ian Whittaker discusses ITV, with a focus on his recent downgrade, is the power of a mass market TV waning and what measures can ITV put in place to address advertisers concerns.
Our first thought on reading ITV’s Q1’s trading statement was that, while it was disappointing to us because there was not the beat vs guidance we had expected given STV’s recent trading statement, the shares still looked attractive. However, on further reflection, we have downgraded to Hold because we do not see a material improvement in conditions any time soon and we are having to put through another material downgrade to forecasts.
Advertising was clearly negative in Q1 19 with a 7% drop in revenue (vs +3% in Q1 18 and +1% in FY2018). Taking into account advertising in April 2018 (+8%), total advertising revenue decreased by 3% in January-April 2019, in line with guidance (-3%/-4%). The trend is expected to be negative in May and June 2019 (respectively -2% and -20% estimated). Lastly, the launch of BritBox, a new streaming service, on-demand and ad-free, is expected in H2 19.
Capital Goods - Early Cycle Indicator, Media Update, 4imprint Group, AB InBev, ITV, Domino's Pizza Group
ITV FOUR AZN HEN3 IFX SOLG ABI DMP DPZ DOM
ITV reports its Q1 trading update on Wednesday. We expect ITV’s Total Advertising revenues to fall 0-1% for the first four months vs previous guidance of -3% to -4%.
Hulu, the Subscription and Advertising-fund Video on Demand OTT service 70% owned by Disney, released further customer stats on Wednesday that showed its US subscriber growth was more than double that of Netflix in Q1. Meanwhile, Discovery (NR) highlighted how it believes the non-scripted OTT space could present a major global opportunity.
Yesterday STV (N/R), which holds the ITV1 license for most of Scotland, published their Q1'19 trading update which provides many positive read across points for ITV advertising revenues. Most notably, management highlighted that national airtime advertising revenues (which correspond exactly to ITV1 advertising performance) were ahead of expectations at -1% to -2% vs previously guided -5%.
Netflix shares fell 5% after-hours on the back of weak Q2 sub growth guidance and concerns about increased churn / cash burn. We think there are some important read-across points here for some of our names from what Netflix said but the key point is that, on balance, we think the threat to the Broadcasters from the likes of Netflix may be somewhat overdone and their situation could benefit substantially those with content to offer.
ITV has announced it has signed up an exclusive deal with digital ad tech company Amobee which will allow addressable TV advertising on its ITV Hub, or VOD platform. There should not be any change to estimates off the back of this but it will help ITV significantly in its attempts to grow its VOD revenues including in the SME market.
Mining Update, Umicore, ITV, MJ Gleeson, Codemasters, Market Highlights
ITV GLE CDM SXX AAL RIO SLP FXPO EZJ WKP AIXA AIR CLI 0RUY BHP
In a number of ways, ITV’s secular position is better than it has been for a number of years: while overall TV viewing is down, its absolute viewing as well as its viewing share is up; its content arm is in a strong position to benefit from the increasing demand for premium content; there is a very big opportunity in the AVOD (Advertising Video On Demand) market including the chance to move into the SME advertising space; and the company has an increasing number of monetisation routes. However, the overwhelming elephant in the room is the likely impact on advertising from the continuing Brexit fallout.
On Monday, Apple announced its plans to launch its own TV streaming service Apple TV+, giving consumers access to original shows, movies and documentaries. For ITV and other broadcasters, there are implications from both the TV+ part of the announcement and what Apple said on Apple TV.
ITV had honourable figures in 2018. Total advertising revenue was up 1%, above guidance (stability estimated). The broadcast of the Football World Cup, the increase in the ITV Family share of viewing (+1.5pt to 23.2%) and the volume of viewing (+3%) were good supports for advertising revenue in a context of lower spendings in various sectors in the UK. Finally, ITV confirmed the final phase for the launch of BritBox which is a new streaming service on demand and ad-free.
ITV reported FY18 results, which were a slight beat vs consensus. Our overall view is that, despite the extra SVOD investment (which most people would have assumed was coming, if not knowing the quantum), the slight beat, better than expected start to the year and also hopes that that a no-deal Brexit will be averted, may give ITV a much-needed sentiment / ratings boost, especially with the shares at c. 9.3x consensus adjusted FY19E PE.
ITV reports FY18 results tomorrow. Our view is that the results will be slightly ahead of consensus (with Dec. not as bad as feared) and that fears of a c.
Two main questions we have received post-our e-mail yesterday on the read across for ITV from STV’s new (effective) retransmission deal with Sky is (1) how do we get to a £120m uplift figure for Sky from a revised ITV-Sky deal? and (2) why doesn’t ITV buy STV? We answer both below.
STV yesterday signed a five year partnership with Sky covering STV’s Video on Demand (VOD) services and regional channels which is a pointer to a deal between ITV and Sky on retransmission fees, which we believe would lead to a material (c. 15%+) uplift on consensus earnings.
We recently took part in a debate at the New Video Frontiers conference on the future of media industry and the FAANGs (Facebook, Amazon, Apple, Netflix, Google). Due to demand, we thought we would publish the transcript. We have also summarised our key thoughts, in essence, that we think M&A is likely to continue in the space and that the FAANGs may start to buy up traditional media players. We would highlight broadcasters as one particular area.
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In 9m 18, total advertising revenue increased by 2%, at the same pace as in H1 18. Once more, total advertising growth was boosted by fast-growing online advertising (+43%). Nevertheless, ITV disappointed the stock market with the expectation of a decrease in total advertising revenue of 3% in Q4 18, o/w -6%/-8% in December.
ITV announces it will sell its South Bank site which it had intended to redevelop. A very rough initial calculation suggests ITV may be able to sell the site for c. £245m vs the £56m it paid for it several years ago and provides ITV with cash that it may use for investment, M&A and / or shareholder returns.
The call by the CEO of Ladbrokes and Coral owner GVC to ban gambling adverts pre-9pm (with a specific exemption for adverts shown during horse racing) is unlikely to have a major impact on ITV for the reasons we set out below. Reiterate Buy.
We have flagged before that a lot of the supposed decline in TV viewing by younger viewers had more to do with measurement systems not capturing viewing on devices such as PCs than a decrease in watching the content. The latest research proves that in reality TV in particular with the new panel recording a c. 25% uplift in audience numbers on some shows. Separately, ITV’s announcement it will not bid for Endemol Shine is a positive for sentiment.
ITV’s Capital Markets Day was useful in proving a lot of background detail on the work it is doing to diversify its revenue streams away from linear TV advertising, themes that we have explored in depth and where we think ITV will generate nearly 45% of its future earnings growth from these new revenue sources. There was nothing said on a potential Endemol bid but ITV stated it was happy with the state of its current production assets, which may suggest a bid is less likely. However, given the market’s attention on current TV trading and an Endemol bid, the CMD is unlikely to provide a catalyst until the market feels comfortable on both these situations. Reiterate Buy
ITV holds their Capital Markets Day on Wednesday. As it has already presented its refreshed strategy at the 1H results, we would expect the focus to be on how TV intends to execute on its plans and are not forecasting any bold new moves. We do, however, expect trading to be positive, given STV’s recent comments. On the Sunday Times story regarding a possible bid for Endemol Shine, there does not look anything particularly new in the story.
US SVOD service Britbox, which ITV and the BBC both have a 45% share, has 400,000 subscribers with a target of 500K by March 2019 and is currently generating “tens of millions of dollars” in revenues. The service is due to be rolled out in other countries, which offers further opportunities for growth. We do not have anything in our ITV valuation for Britbox but its stake could be worth over £500mn.
In these five short videos Liberum's Media Analyst, Ian Whittaker, looks at the recent ITV/Virgin retransmission fees deal, with a focus on how much the deal will help ITV, the implications of non-disclosure fees regarding ITV1 and the implications of the deal for the UK TV sector.
Mars announced it was pulling all advertising from YouTube in the UK until further notice after an advert for one of its products appeared alongside violent rap videos. The seemingly endless wave of YouTube problems on this issue creates an opportunity for ITV to take a greater share of the very fast growing £1.7bn UK online video advertising market where it has <6% share vs c. 46% share of UK TV advertising.
In H1 18, total revenue growth was mainly driven by non-advertising revenue which included a good trend at ITV Studios, while total advertising revenue increased moderately (+2%, o/w +3% in Q1 18). Adjusted EBITA declined in both Broadcast & Online and ITV Studios. The Q3 18 expectation includes flat total advertising revenue.
ITV’s new three year retransmission deal with Virgin Media should give it all the benefits, in reality, of carriage fees for ITV1 while allowing Virgin Media to maintain it has not specifically paid for ITV1 carriage. We estimate this deal should give ITV an extra £40m of pre-tax profits annually, equivalent to c. 5% of FY19E consensus estimates. If ITV can reach a similar deal with Sky, this would mean close to 20% consensus earnings accretion. A side-effect of the deal is likely to be a renewed interest in acquiring STV (NR), which holds the ITV1 licence in Scotland.
We are slightly biased as much of the focus of ITV’s Strategy Update (as well as its title) mirrored what we have written about previously but ITV’s updated strategy not only looks sensible but also positions the company for future significant earnings growth even in a flat TV NAR environment. Our view is that the £60m investment announced is the right level – enough to ensure ITV takes advantage of future opportunities while not overspending. The question now is ITV’s ability to execute and the resilience of linear TV, both areas where we have confidence, as well as any potential M&A activities.
ITV has announced its new strategy, focusing on three areas (1) growing Total Advertising (2) Content and (3) Direct to Consumer Revenues ahead of its CMD on September 19th. It will lead to consensus downgrades for 2019E on the back of extra investments although these will be offset by cost savings in 2020E and 2021E. However, the strategy makes sense and fits in line with our view that ITV is now more than just linear TV. The strong growth in Online VOD (+48% in 1H) also demonstrates how this category will be the driver of Total Advertising growth moving forwards and new high margin revenue streams should help to drive earnings growth over the medium term. Presentation at 09h30 am at the London Stock Exchange.
We expect ITV to provide a beat vs 1H guidance at 1H results on Wednesday with the World Cup and Love Island leading to a very strong June and July advertising performance. This should drive FY18E consensus upgrades. Pearson is more difficult to predict as 1H is not a large percentage of FY profits and, at this stage, there is little visibility on the core US Higher Education courseware business. Nevertheless, we think there is an outside chance Pearson may point to weaker US Higher Ed enrolment trends and / or (in particular) any direct response to Cengage’s “all you can eat” offer impacting their FY guidance. Finally, the news that WPP is looking (reportedly) to sell a stake in its Chinese business should be seen as a positive for the shares.
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In these three short videos, Building Materials & Housebuilders Analyst, Charlie Campbell, looks at his recent initiation on Crest Nicholson, with a focus on why he likes the shares, his confidence in margin stability returning and what investors are missing.
Ian Griffiths, who has been CFO since 2008 and, more recently, COO, has announced he is stepping down and will retire within 12 months. The news will be seen as disappointing because he is highly regarded and is seen as having been instrumental in the turnaround in ITV's fortunes. However, we would not read anything negatively into the news and, probably not coincidentally, the news have been announced on the day of the ITV Summer Reception, ITV's main annual event. Ian will leave ITV in rude health, with its audience share significantly up YTD and the benefits of VOD advertising growth making a significant contribution. Reiterate Buy.
In these five short videos Liberum's Media Analyst, Ian Whittaker, discusses his latest note on ITV with a focus on Video on Demand (VoD) and why its transformational potential is offering new opportunities, earnings growth and how VoD is helping ITV to enter the SME advertising market.
There is a huge opportunity for ITV in the online VOD space, a theme we explored in our October note titled ‘More than just linear TV’. We estimate >45% of ITV's profit growth will come from its Online, Pay and Interactive (OPI) unit and that linear TV, although resilient, will become less important to the business. If ITV can capture a greater share of the online VOD market, there could be c.20% upside to our longerterm forecasts, in our view. Reiterate BUY with a new TP of 275p (from 265p).
The new series of Love Island has got off to a tremendous start with the opening programme audience even exceeding last year’s grand final. This should bode well for both the June and July TV advertising numbers and also the high margin ITV Online VOD revenue numbers, which grew 41% in Q1 and where there is a strong chance of even higher growth in Q2. Increasingly, there looks like upside risk to the consensus FY18E ITV TV NAR forecast range of -1% to -2%. Any upgrades are likely to drive a rerating. Reiterate Buy.
STV (NR), which owns the ITV1 licence in most of Scotland, held an investor day and there were a number of positive read-across points for ITV. From a short-term trading perspective, it looks like June TV advertising numbers may be better than expected as there is growing momentum in the TV ad market. On Online VOD, an area of focus for STV, Cost Per Thousand (CPT) rates are not expected to lose their 3-4x premium to ITV1 rates any time soon and, while the language of ITV1 retransmission revenues has changed, it seems like STV (and we would think ITV) expect to get to the end result i.e. more revenues but by a different route.
ITV released a good set of figures in Q1 18. Total advertising revenue recovered some colour (+3%), boosted by online (+41%) and the positive turnaround of ITV Net Advertising Revenue (NAR) (+1% vs -5% in FY2017) in line with expectations. The “strategic refresh” is going well, according to management.
ITV's Q1 trading statement showed how ITV's increasing diversification is playing dividends. While ITV's TV NAR was +1pc in Q1, total advertising was +3pc, boosted by a 41pc growth in VOD ad revenues, and content revenues grew 9pc organically. For 1H, ITV has trimmed its NAR growth to flat from positive but, crucially, June advertising is expected to be +15pc, which raises questions over Media Buying expectations and justifies our stance to have placed more weighting on the comments of STV (NR). We expect forecasts to remain broadly stable but, after negative expectations around June, the shares may see a turn in sentiment. Reiterate Buy.
STV (N/R), which holds the ITV1 franchise for most of Scotland, gave a trading update at its AGM, providing both a Q1 update and forecasts for the five months to May. The simple message is that ITV1 national advertising looks to be performing in line with what ITV said for Q1 and what the market expects for April and May, although the abolition of penalty fees for late booking may reduce visibility on May trends.
Earlier this year, we suggested that those interested in the TV vs online ad spending debate should look at the comparable performance of US department store giants Macy’s and Sears over Christmas as Macy’s had decided to pump more money into TV advertising whilst Sears had taken money out of TV and put it into digital media. What happened was that Macy’s beat expectations for sales whilst Sears saw a double-digit decline in like for like store sales. Whilst there may be other factors at play, we think the differing advertising strategies may have had a role in the divergent performance.
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We spoke with three media buyers who have visibility into, we estimate, close to two-thirds of the UK TV advertising market. The overall message was that the World Cup in June and July should provide a boost and that was still on track and that, while uncertainties exist, no one is expecting the market to reverse. On April’s weakness, that looks to be mainly timing driven with ITV also being impacted by advertisers shifting spend to other channels ahead of spending heavily on ITV during the World Cup. Reiterate Buy.
The week kicked off with the Metropolitan Police commissioner suggesting that social media has been accelerating the rate of crime in London. Then a group of advocacy companies claimed to the US Federal Trade commission that YouTube had been illegally collecting data about Children. Finally the German cable operator association called for the public broadcaster to withdraw from Facebook as it implicitly encourages the misuse of data via spending some of the license fee on the social media platform. We have written previously that we believe the issues relating to Facebook/Google will snowball to a point at which advertisers re-evaluate their use of these platforms. Whilst the ground-swell is at an early stage the TV broadcasters are likely to benefit from any shift from digital back into TV as they are able to offer a safe brand environment with mass media reach.
One of the three major global media forecast groups has put through the biggest advertising upgrade in seven years, citing increased advertising growth in China, amongst other places. While the focus may be on the Agencies with this news, we think the more interesting read-across is for the TV Broadcasters, given Publicis’ view that TV advertising is actually strengthening its position when Online Video and other new revenue streams are considered.
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Back in October 2017 we wrote a note on ITV Download ITV (BUY, TP 330p) - More than just linear TV (47 pgs) stating that a major misconception about ITV and other broadcasters is that they are seen merely as linear TV providers. This is wrong; ITV (and other broadcasters) can increasingly monetise content across other platforms. We see c. 50% of ITV’s profit growth coming from digital sources and this does not include anything for ITV1 retransmission revenues, Addressable TV or Britbox. If ITV can increase its share of the £1.1bn+ online Video Display advertising market, it would accelerate profit growth. Increasingly, linear TV is far less important to profit growth, making up <15% of growth over the forecast period.
In these five short videos Ian Whittaker, Liberum's Media Analyst looks at ITV's performance YTD with a particular focus on ITV's audience share, peak time schedule, the potential to generate mass market audiences, ITV's other channels performance and how it all stacks up for ITV going forward.
The Times reports that advertisers may pull advertising from Facebook as the scandal over the harvesting of consumers’ data continues. We think this issue is more likely to snowball than recede and that advertisers are reaching a tipping point at which spending on not only Facebook and other online platforms, is re-evaluated. The big beneficiary from any shift would be the TV Broadcasters who are already starting to see money shift back into TV from digital. Moreover, their Video-on-Demand (VoD) offerings are an ideal home for advertisers looking to advertise online in a brand safe environment.
We see the implications from the increasing pressure on Facebook and other online players as being a positive for a number of traditional media companies. For Agencies, the problems of the online giants and the increasing questions being asked reduce the risk of disintermediation by advertisers going direct to the online players. While there is a question whether increased regulation of data and consumers’ unwillingness to provide that data complicates the Agencies attempts to monetise data, there is an argument that the Agencies have better opportunities if advertisers have fuller control of the data. The big gainers could be the Broadcasters, part because Facebook would be weakened as a competitor for ad money but also because their own VOD services could become increasingly more attractive to advertisers looking for a brand-safe area to put online spending.
ITV’s TV is in rude health with the six reasons below demonstrating the validity of that claim. ITV remains one of our top media picks and, while the stock is certainly not in investors’ good books currently, the fundamental strength of its performance combined with a <10x adjusted FY18E PE and a close to 10% FCFE yield, are powerful reasons to buy.
In these four short videos Liberum's Media Analyst Ian Whittaker looks at ITV’s recent share price fall, and asks if the concerns over the company are justified, whether TV is structurally under threat, what the future revenues for ITV are and why the stock is still a Buy.
We cut our ITV estimates by c. 14%-15% and our target price from 330p to 265p. The cuts are partly driven by a reduction in our FY18 ITV NAR advertising forecasts from 3.6% to 2% but also lower growth at the high margin Online Pay and Interactive units and higher programming costs. We still like ITV as a structural story and think the shares are trading at far too cheap a level at these prices but we do recognise the shares may lack an immediate catalyst given the September CMD and macro issues looming.
A mixed set of FY17 results and some rising costs expected ahead. But the group’s content capabilities remain a valuable asset and it has the financial strength to expand. Some downgrades expected to our forecasts and target price but a positive recommendation is likely to be reiterated awaiting for the “Strategic refresh” to be revealed this summer.
ITV FY numbers were in line with expectations on the advertising front and earnings were slightly ahead of consensus estimates. The advertising outlook is better than expected in our view with Q1 guided to be up 1% and H1 to be positive. After five special dividends, ITV decided to not pay one this year, which we think might suggest the company is looking at an acquisition and we believe STV would make sense.
The FY17 results on Wednesday will be the first opportunity for the new CEO, Carolyn McCall, to present to the market. We do not expect a major change in ITV’s strategy though there may be some variations. We also expect her to be reasonably upbeat on ITV’s advertising prospects, especially in the context of the difficulties of 2016/7. On retransmission revenues, we think ITV is likely to seek a solution that will allow both it and Virgin Media to claim victory. Reiterate Buy.
The comments from Unilever's CMO suggesting it will pull advertising money from digital platforms on the grounds of transparency and concerns over where adverts are placed is a major opportunity for the FTA Broadcasters to take a greater share of the online video advertising market.
Sky showed a very good 1H UK TV advertising performance, which was powered by a 17% growth in its Addressable TV revenues. Evidence from the US also suggests advertisers are taking up Addressable TV. We do not have anything in our estimates for Addressable TV in our ITV forecasts but it is one of the several new revenue streams which we expect ITV to exploit in the coming years and which should power earnings growth.
In these five short videos Liberum's Media Analyst, Ian Whittaker, looks at the Top Picks & Notable Calls for 2018 and the key themes the team is expecting in the year ahead. Click the image below to watch the video.
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Hulu, the VOD / OTT TV service run by US Broadcasters in the US, gave an update on its subscriber numbers and advertising revenues. Three facts stood out (1) Hulu has grown its subscriber base by 40% since Spring 2016 (2) in 2017, it broke the $1bn mark for advertising revenues and (3) it has very attractive demographics. We see a major opportunity for ITV to similarly grow its Online and Pay revenues, which we explored in a major piece last year and which are very high margin. Reiterate Buy.
Taking the opportunity of its 9 months 2017 Trading Statement, ITV reiterated its FY17e guidance for its broadcasting division’s revenues outperforming the TV ad market with ITV Family Net Advertising Revenues (NAR) anticipated to be down 5% (slightly worse than our own -4.5% and reflecting UK economic uncertainty). The group also still expects ITV Studios to deliver “good organic revenue growth” and a flat operating profit. The £25m savings are on track and will be added to £25m lower programming costs (thanks to no major sports events). The 9 months 2017 total external revenues were down 1% to £2,132m (the 7% NAR decline, in line with guidance, being offset by non NAR revenues up 8% and total ITV Studios’ up 9%). Note two positive points: current signs from some FMCG and grocers returning to TV advertising and ITV Family share of viewing up 2% year to date.
ITV’s H1 17 results were in line with expectations, within a particularly tough environment. Total external revenues declined 3% to £1,458m as ITV Family net advertising’s revenue fell by 8% to £769m (c.53% total group; Q2 was down 7% after -9% over Q1, including a tough basis of comparison due to the FY16 Euro Football Championship), in line with the guidance for an 8-9% decline for the first part of the year. This was counterbalanced by non-NAR being up by 6% with ITV Studios’ revenues rising by 7% to £697m (+0.6% at CER). As expected, the latter reported a 9% decline for its adjusted EBITA, namely reflecting the ongoing and strategic investment in the US scripted business but also due to a difficult basis of comparison (last year’s reporting of The Voice of China). Consolidated adjusted EBITA was down 8% to £403m, i.e. a 28% margin compared with 29% a year earlier. H1 17 adjusted EPS reached 7.7p, down 9% but slightly above the consensus of 6.9p, while the interim dividend was raised 5% to 2.52p. Management reiterated its FY17e guidance, expecting pressures on advertising to ease in Q3 (anticipated at -4%, with July down 5%, August -4% and September flat at -5%, due to current economic and political uncertainties) and still anticipates ITV Family NAR to outperform the market this year. At the same time, the required investments to grow the content production arm further (on a global market growing c.+5% per annum) imply that ITV Studios’ FY17e OP is likely to remain flat compared to FY16. Studios, which has already secured 85% of the expected full-year revenues, i.e. more than £100m compared to the same time last year, is however anticipated to deliver “good organic revenue growth”. Note that the group is on track to deliver £25m savings in overheads this year (£14m delivered over H1), with a £25m reduction in the programme budget (i.e. total FY17e programming budget at c.£1,025m, helped by no major sporting events).
ITV numbers were well down in H1 as expected, but less than forecast. Q3 guidance should reassure investors that ITV is now moving past the worst point for cyclical headwinds – and that structural pressures remain manageable. With scope for full year numbers to nudge up, Love Island providing reassurance on structural issues, and a new CEO due to arrive in January 2018, we see scope for a relief bounce in the shares from current levels. Valuation remains very undemanding at 11.2x EPS (FY17E) with a 4.5% dividend yield.
The update confirms a weak trend for both NAR and studios in H1 – but no worse than anticipated, and already well flagged previously. More encouragingly, full year guidance is unchanged, Studios still expects to deliver good organic growth for the full year which is a relief, and assent for the Digital Economy Bill brings forward the potential for a boost from retransmission fees. The stock has been weak into this update, so may bounce on its relatively reassuring overall message.
This morning’s announcement that the ITV CEO, Adam Crozier, will leave the company as of end-June 2017. Chairman Sir Peter Bazalgette will assume the role of Executive Chairman during the interim period while CFO Ian Griffiths will combine the CFO and COO functions. Adam Crozier intends to build a portfolio of roles across the Plc and private sectors. The company claims to have a well-developed succession plan in place and expects to announce a longer-term successor to Adam Crozier “in due course”.
NAR tough, but Studios bounces back. Overall resilient figures from ITV, with EPS 4% ahead of forecasts driven entirely by Studios. For FY17E NAR looks weaker than expected (we estimate -9% for Q1), and overall we expect a small nudge up for our EPS estimate (15.8p) towards current FY17E consensus (16.2p). Special dividend of 5p for FY16E is low end, but a move towards future cover of 2x should underpin continued yield attractions. The shares have support from a low valuation, a strong balance sheet, resilient viewing figures, and vulnerability to a bid. However, we expect the valuation to remain low for now, reflecting ongoing concerns on NAR visibility, structural changes to TV, and further Studios M&A. We also feel that near term timing feels wrong for most of ITV’s potential strategic acquirers. We stick with Hold ahead of the meeting (0900).
ITV produced a globally satisfactory set of results for FY 16 with consolidated external revenue up 3% to £3,064m (AV was £3,094m), despite declining advertising revenues (-3%) as non-NAR revenue (53% total group) rose by 11% (ITV Studios up 13% to £1,395m, driven by acquisitions; US revenues down 27% or £85m due to three big shows recording £100m less revenues). The adjusted EBITA was better than we had expected, up 2% to £885m (AV was: £847m), i.e. 28.9% compared to 29.1% in FY15, which we take as a good performance considering last year’s tough domestic environment. This was supported by a good trend for the Studios activities (adjusted EBITA up 18% to £243m) whose profitability improved by 75bp to 17.4%... Consolidated adjusted EPS improved by 3% to 17p (FY15: 16.5p), above our 15.9p expectation and the group is proposing a 4.8p final dividend implying a full-year dividend of 7.2p, up +20%. As expected, ITV also announced a special dividend, although lower than we had anticipated (5p compared to 9p). Management is continuing to guide for FY17e “good” organic revenue growth at Studios (>£150m more revenue already secured compared to same time last year) while visibility remains low on net ad revenues (-6% expected over the first 4 months 2017; June, down due to the euro basis of comparison). £25m additional savings (unchanged) is also expected to be generated this year..
Ahead of prelims on March 1st, we tweak estimates and move back from Buy to Hold. We do still see good long term value in ITV, based on a resilient structural position in UK TV viewing. However, after a 30% bounce from post-Brexit lows of c160p, we now see more negatives than positives looming in the near term. The risks include NAR weakness, studios trading, management change, and content acquisitions such as ETO. We do see possible upsides from retransmission costs and from bid vulnerability – but also a strong case for likely bidders to sit on their hands for now. We lower our Target Price from 265p to 225p, and travel cautiously into these prelims.
We view the approach for Sky by 21st Century Fox as 80-90% likely to get through regulatory scrutiny and succeed. This is likely to increase the strategic focus on ITV, which has a low valuation due to its near term trading challenges, but is a unique asset in a consolidating sector. ITV shares bounced 6% on Friday and could rally further in our view, despite timing complications in the near term for several of the potential strategic buyers.
The proposed acquisition of Time Warner by AT&T highlights what we see as the irresistible gravitational pull of communications markets towards converged services. We argue that Sky, BT and Vodafone/Liberty will all need to invest further in owned content – and that ITV looks strategically attractive in this regard (both for its content and broadcasting operations). We accept, though, that timing on this could be some way off yet, and in the meantime ITV needs to knuckle through what is likely to be an extended period of weakness for advertising revenues.
ITV reported a globally satisfactory set of results for H1 16 with consolidated external revenue up 11% to £1,503m (+£147m from H1 15), despite flat advertising revenues. Adjusted EBITA rose by 10% to £438m but reflected a 36bp drop in profitability to 29.1%. Adjusted EPS improved by 10% to 8.5p (2015: 7.7p) and the group has declared a 2.4p interim dividend, up 26% and slightly above our forecasts (2.28p). Note that, as the Studios business grows internationally (50% of revenues outside the UK), forex changes have an increasing impact on the group’s results (benefit from stronger US$ and euro). At CER, ITV Studios H1 16 revenue would have been £14m lower (i.e. a 2.2% impact) and adjusted EBITA would have been £3m (a 2.5% impact). Management is continuing to guide for FY16e double-digit revenue growth for ITV Studios (mostly driven by acquisitions) with a growing adjusted EBITA as well as double-digit revenue growth in Online, Pay & Interactive. Conversely, ITV Family NAR is expected to decline by c.1% for the 9 months to the end of September (also suffering in August from viewers watching the Olympics on the BBC), although still outperforming the market. The group expects that, at current unchanged levels, forex impact (translation) could be for £74m additional revenue and £13m more profit (equivalent to respectively 2.5% and 1.5% of FY15 revenues and OP). Exceptional items for the full year (treatment of employment linked consideration for acquisitions, namely Talpa) were raised from £110m to c.£115m due to forex but exclude likely one-off charges linked to FY17e savings plan.
We confirm our new estimates following interim results which overall provided some reassurance. We now forecast EPS of 16.7p this year and 15.8p in FY17E, based on NAR declines of 2% and 4.6% respectively. The overall step down postBrexit is less than feared, and leaves the stock valued at 12.4x ‘low-cycle’ FY17E EPS, supported by a 4.4% yield, even after its recent recovery. For investors who wish to retain some UK cyclical exposure in portfolios, we see good long term value in ITV and remain positive.
H1 results look ahead of expectations, driven by Studios, but post-Brexit the company is now guiding to a NAR decline of 3% for Q3. While we expect EPS downgrades, these look within the range, and already priced in given the stock price weakness seen before and since the Brexit vote. While the shares are likely to be blighted by poor visibility on NAR in the short term, we see good long term value and remain positive.
In the near term, interim results due July 27th could be a “no win” situation for ITV, as the market waits for some clarity on the outlook for UK advertising postBrexit. We expect sound H1 numbers, powered by studios, but ITV’s update on Q3 NAR is likely to be key. Our sensitivity analysis suggests that ITV looks good value at these levels, even if we were to factor in a repeat of the 2008-9 advertising downturn. We do expect our NAR estimate to move down with these results, based on the post-Brexit outlook, but we remain buyers of the shares given what is already factored into the valuation, as well as ITV’s strategic attractions in a UK TV market likely to consolidate and converge.
ITV’s share price is down c.20% in the aftermath of the UK Brexit vote. The group is obviously very reliant on the UK advertising environment with c.65% of its external revenues from Broadcasting and a high fixed costs model.
ITV’s update confirmed a weaker recent NAR trend, with family NAR indicated to remain broadly flat in Q2 (same as Q1) despite boosts from Euro football and the UTV acquisition. However, all the metrics suggest to us increased cyclical rather than structural pressures. We continue to believe at least some of this is likely to be short term (Brexit uncertainty) with scope to reverse in H2. While the cyclical weakness results in a 3% cut to EPS estimates, the 20% decline in the share price since the start of the year offers an excellent entry point (12x EPS) for a stock whose structural position is actually improving in the near to medium term (rising TV viewing, rising ITV share, BBC Charter renewal) and which has strategic attractions to others in a converging UK TV market.
ITV’s update confirmed a weaker recent NAR trend, with family NAR indicated to remain broadly flat in Q2 (same as Q1) despite boosts from Euro football and the UTV acquisition. However, all the metrics suggest to us increased cyclical rather than structural pressures. We continue to believe at least some of this is likely to be short term (Brexit uncertainty) with scope to reverse in H2. While the cyclical weakness results in a 3% cut to EPS estimates, the 20% decline in the share price since the start of the year offers an excellent entry point (12xEPS) for a stock whose structural position is actually improving in the near to medium term (rising TV viewing, rising ITV share, BBC Charter renewal) and which has strategic attractions to others in a converging UK TV market.
This Thursday (May 12th) is shaping up to be a big day for the stock, with the expected release of the government’s White Paper on BBC Charter renewal a well as ITV’s Q1 trading update. We see a very attractive balance of risk and reward at current levels, with a recent slowdown in NAR now very much priced into the valuation in our view (12.2x FY16E EPS) and potential upside if the regulatory changes do prove to constrain the BBC’s remit in popular programming.
This Thursday (May 12th) is shaping up to be a big day for the stock, with the expected release of the government’s White Paper on BBC Charter renewal as well as ITV’s Q1 trading update. We see a very attractive balance of risk and reward at current levels, with a recent slowdown in NAR now very much priced into the valuation in our view (12.2x FY16E EPS) and potential upside if the regulatory changes do prove to constrain the BBC’s remit in popular programming.
When it comes to ITV’s stock price, the tail (monthly NAR trends) always seems to wag the dog – and we think this is happening again currently. We expect NAR to bounce back by mid-year, helped by Euro football. Structural pressures on ITV’s broadcast business remain very manageable in our view (as they have been for many years). While a near term move on Entertainment One may not come to pass, the reports of bid interest highlight ITV’s strategy to grow its content and OPI business (38% of revenues in FY16E) and its financial capacity to do so (or pay further specials) helped by strong cash flow and an underleveraged balance sheet.
ITV reported strong FY 15 top-line growth across the business, enabling consolidated external revenues to improve by 14.8% to £2,972m (advertising: +6%, c.1% ahead of the market; Online, Pay & Interactive: +23%; Studios: +33%; non-NAR revenues, now 49% of the total, rose by +25%). Note that forex had no material impact in FY15 while recent acquisitions (Talpa, Leftfield and Twofour) added £235m to revenues. Global adjusted EBITA was up 18% to £865m or a 90bp margin improvement to 29.1%, supported by the solid Broadcast & Online division performance (+260bp to 30.7%). Adjusted EPS improved by 20% to 16.5p, 3.8% above our 15.9p estimates and the group, which increased its dividend for the year by 28% to 6p, also announced a special dividend (10p per share or c.£400m) for the fourth year in a row. ITV also stated a positive outlook for the current FY16e, with continued revenue growth forecast across the business. A further outperformance of the TV advertising market is anticipated (with a flat Q1 and a positive Q2 supported by the Euro football event), while Online, Pay & Interactive is likely to deliver double-digit revenue growth. This is also expected to be the case for ITV Studios, namely driven by last year’s acquisitions while this business is also said to have a good pipeline looking into 2017.
We are pleased by the momentum revealed in ITV’s interims and remain bullish on its trading prospects and underlying fundamentals. Downward pressure on viewing share remains an issue, but this is being addressed. We have nudged up our forecasts (FY2015E EPS +2%), expect strong EPS and DPS progress (likely to be enhanced by acquisitions) and view Liberty Global’s recent share purchase as indicative of the group’s strategic value. We have raised our target price to 300p and reiterate our Add recommendation.
The S&P Media index had its worst day for four years yesterday (-6.3%) as reduced guidance for Disney's ESPN unit stoked fears that OTT growth is causing increasing disruption to the US pay TV market. The read-across from this could trigger some near term profit-taking for ITV and Sky, both of which have had strong share price runs recently. Longer term we retain our positive view on ITV, based on its solid fundamentals and strategic value as the UK TV market converges and consolidates.
ITV has confirmed that it is in exclusive talks regarding a possible acquisition of Talpa, the Dutch TV production company which owns The Voice. Depending on terms, such a deal could be usefully EPS accretive and synergistic for ITV, in our view. It could also provide a further positive factor for prelim results due this Wednesday (March 4th), countering concerns around viewing share and organic growth for content
