ITV’s Studios driving revenue growth

27th July 2016

ITV’s interim results for the six months to 30 June 2016 show total external revenue was up 11% to £1,503m. This has been driven by growth in ITV Studios external revenue, which rises to £442m, an increase of 38%.

In Broadcast & Online, total revenue is up 3% to £1,061m, with Net Advertising Revenue flat at £838m, while Online, Pay & Interactive revenue is up 26% to £107m.

Adjusted earnings per share is up 10% to 8.5p, and the interim dividend is increased by 26% to 2.4p

The result of the EU referendum has cast some uncertainty over the wider economy, but ITV believe that they have a robust plan to meet the challenges ahead, including £25m of cost savings.

George Salmon, equity analyst, Hargreaves Lansdown says: “With the average person in the UK watching over almost four hours of TV a day, the advertising space that ITV sells is big business. However, the price they can sell that space for could drop if the UK economy takes a tumble, because advertising budgets are often at the top of the hit list if companies need to save costs.

“Since taking over the helm, Chief Executive Adam Crozier has changed the balance of the business with a string of earnings-enhancing acquisitions. As a result, ITV now make more programmes for their own use, or to sell to others, which gives the group more diversification, and also reduces the dependency on the UK. Indeed the ITV Studios division now generates over half of its revenue overseas.

“With a stronger balance sheet and net debt lower than at the time of the last crisis in 2007, we feel that ITV now looks more stable than last time around, if it turns out we are heading into an economic slowdown.

“The other main talking point around ITV are the prospects for future acquisitions. If ITV can find the right deals, at sensible prices, then it could grow even faster than the market consensus currently predicts.

“Expectations are for sales to rise from £3.0bn last year to £3.6bn in 2018, with earnings per share forecast to increase by over 25% in the process. Of course, these expectations are dependent on economic conditions.

“The shares trade on a forward price to earnings ratio of 11x, on current consensus forecasts. The dividend is also an attraction; the shares have a prospective yield of 4.7% this year, rising to 5.5% in financial year 2018.”

Philip Harris, manager of the EdenTree UK Equity Growth fund said: “ITV’s results this morning validate our long-term thesis on the company. A classic ‘growth compounder’, ITV is still the dominant free-to-air channel in the UK – with its growing production unit expanding globally. High margins, cash flows and returns on capital highlight the quality of the underlying business.

“Shorter-term worries of a slowdown in the UK and longer-term structural issues appear misplaced as ITV begins to increase viewership.

“Furthermore, the recent special dividend left the balance sheet virtually unlevered and it is capable of more special dividends or acquisitions. The potential upside on retransmission revenue from satellite operators has not been factored in into the current ITV share price level, nor has the possibility of operators such as Liberty Global or BT casting an acquisitive eye on ITV.”

Leave a Reply

Your email address will not be published. Required fields are marked *