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.
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.
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.
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.
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.
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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.
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 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.
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.
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.
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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).
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”.
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Kape’s recent Capital Markets Day (CMD) was an extremely useful update on the many benefits of integrating complementary acquired businesses (including the collaboration between engineering teams) and the opportunities for upselling that new product development brings. Over the last six months, Kape has proceeded with the integration of PIA, expanding the growth of new users through the application of the Group’s user acquisition knowhow and technology. It has also made further enhancements to its product offering which, inter alia, will improve user engagement and retention. This note looks to bring out the main points from the CMD and highlights the significant progress that has been made this year.
Companies: Kape Technologies
U.S. futures and European stocks dropped on Friday as investors mulled a reported conflict among policy makers over a stimulus package for the single-currency region, as well as political upheaval in France.
The Stoxx 600 Index fell after Bloomberg News reported the European Central Bank is facing a potential rift over how much their emergency bond-purchase program should stay weighted toward weaker countries such as Italy. The euro fluctuated following French President Emmanuel Macron's decision to name a new prime minister after asking his government to resign. Rolls-Royce Holdings Plc slumped after the British jet-engine maker said its exploring options to raise funds to strengthen its balance sheet.
The dollar was slightly down, posting its first weekly drop in a month, while American cash equity and bond markets were shut for Independence Day. President Donald Trump will attend an early July 4 celebration at Mount Rushmore with thousands of guests who won't be required to wear masks, while his U.K. counterpart Boris Johnson urged Britons to act responsibly as pubs prepare to re-open and the government lifts quarantine rules on travel for 60 countries.
The friction at the ECB highlights the risk to markets should promised stimulus measures fall short. Investors continue to weigh policy support and upbeat economic data against relentless new outbreaks of the virus. U.S payrolls figures Thursday fuelled optimism of a V-shaped recovery in the world's biggest economy, even as Florida reported that infections and hospitalizations jumped the most yet, and Houston had a surge in intensive-care patients. Emerging-market stocks posted the biggest weekly gain in a month.
Elsewhere, crude oil dipped but remained on track for a weekly gain.
Companies: TGL JSE IAE ADME BP/ DGOC ENOG NTQ NTOG PMO RBD ROSE RDSA UKOG TRIN
A well-attended virtual CMD highlighted the continuation of attractive market dynamics within the Group’s core Data Privacy segment, as well as offering insight into PIA integration progression and the Group’s product roadmap. The launch of the Kape’s customer dashboard further improves customer experience (‘CX’), providing an easy-to-use interface and attractive upsell/ cross-sell optionality. We have taken the opportunity to introduce FY’22E forecasts on the back of the CMD, with strong customer retention and in-market consolidation improving the competitive landscape. FY’22E sales of $150m (FY’20E: $123m) are forecast to deliver adj FCF of $39m (FY’20E: $19m), generating a FCF yield of 8.4% in FY’22E. The Group has a number of levers for outperformance against conservative forecast KPIs.
Blackbird plc* (BIRD.L, 19.25p/£64.7m) | Mirada plc* (MIRA.L, 92.5p/£8.2m) | Tern plc* (TERN.L, 10.75p/£29.0m) | Checkit plc (CKT.L, 39.5p/£24.5m)
Companies: BIRD MIRA MIRA TERN CKT
What’s new: Since 27 April 2020, when OnTheMarket started offering new “welcome contracts” almost 500 estate agent branches have signed up, with each business owner receiving welcome shares and over 60% either listing exclusively with OnTheMarket or on a “one other portal basis“.
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
Companies: OPM ALU ANCR BLV CONN CRC STU GATC HAT LEK MMH MCB MWE NXR NTBR NOG PAF PEG RFX SRC TEF TEG TPT VTU WYN XLM
The Coronavirus pandemic is a human tragedy of vast proportions – as well as the terrible human toll, COVID-19 has led to economies across the globe going into physical lockdown and financial freefall. Entire populations are adapting to the “stay at home” edict, to safeguard the vulnerable – and some of these changes will lead to long-lasting or perhaps permanent changes in the way we live or work. This note describes some of our client companies whose business models are well adapted to these changes, or who might see a change in long-term structural demand.
Companies: AMO BGO FDM GAMA KAPE LOOP TERN ZOO
Cello Health (CLL.L): Recommended Cash offer
Companies: Cello Health
YouGov has updated on good H120 figures, with underlying revenue up 15% and adjusted operating margins increasing from 13% to 15% as the mix shifts further to the higher-margin Data Products segment. The group had cash of £27.2m at end January (lease liabilities only). With an online culture since the group’s inception 20 years ago, it is better placed than many to satisfy the increased desire to understand what is happening in populations by corporate and state at this time of uncertainty. We have reflected a more cautious outlook for the remainder of the year and will revert with FY21 estimates when the outlook is clearer.
What’s new: OnTheMarket plc (65% agent-owned and has almost 40% of independent UK estate and letting agents as shareholders) has released its January 2020 results revealing:
+ 32% rise in average branches listed to 12,497 (over 8,000 paying at year end; over 9,000 paying on 31 May 2020);
+ 12% rise in advertisers during FY20 to 13,364 (31 May 2020: 13,605);
+ 49% rise in mobile site traffic or portal visits to 237m;
+ 75% rise in average monthly leads per advertiser to 96.
Capital markets day a potential catalyst; Buy
We have refreshed our momentum style screen for the first time since inception on 26 July 2016. As before, the screen selects the 25 stocks exhibiting the most extreme momentum characteristics, according to our measurement method. From these we have selected 10 to focus on. Since inception the screen has underperformed both the main small-cap and micro-cap indices against a background of generally rising momentum. We have noted a subset of the basket, where decelerating momentum at the time of measurement appears correlated with significant share price falls since selection. We shall monitor this factor with the new screen, albeit there are only two such stocks showing this pattern, namely Lamprell (not rated) and Gear4music (not rated).
Companies: IQE SDY SUN ERGO NETD G4M GFIN ULS FUTR
OnTheMarket (“OTM”) is the largest majority-agent owned UK Property Portal. In its previous form Agents' Mutual, its agents with Board membership included SpicerHaart, Savills, Knight Frank, KFH, Strutt & Parker and Chestertons. OTM recognises that Agents’ listings provide the content for Portals to monetise, and Agents are the main source of Portal income. In recent years Agents’ shareholdings in the two large Portals, Rightmove and Zoopla, have fallen, while their prices have risen sharply. Duopolistic* pricing and reduced agent ownership within the two leading portals create the conditions for the next stage of OTM’s growth. OTM offers agents competitive prices with benefits of “mutual” ownership supported by external capital to fund marketing and growth plans. This includes use of 36.4m shares to attract agents with over 5,000 offices.
The Court of Appeal yesterday issued judgment “comprehensively” in favour of property portal owner OnTheMarket’ssubsidiary, Agents' Mutual, regarding all the competition issues in its legal proceedings against Gascoigne Halman, part of the Connells estate agent chain. While the non-competition issues relating to OTM’s claim remain to be resolved, we see this as a positive in terms of investor sentiment and allows senior management to focus more on the delivery of its growth strategy.