Can investors fall back in love with ITV?

After a difficult few years, ITV has had some success recently. Richard Hunter, head of markets at interactive investor, runs through the latest numbers.

Not only is ITV currently coming back into fashion with viewers, it is also building upon creative strengths so as to lessen the focus on its traditional business model.

ITV has, for some considerable time now, been attempting to wean itself off a major reliance on UK advertising income, as on-demand TV becomes increasingly entrenched in the viewer's psyche – the ITV Hub is showing strong growth, especially amongst young adults and the current success of series such as "Love Island" increases the attraction to that demographic. 

The possible exception to this is live sporting events and, indeed, the recent World Cup will have provided a pleasant boost to revenues. 

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Elsewhere, and with the expanded strategy in mind, the company will be particularly pleased to be able to report an increase of 14% to non-advertising half-year revenues and 16% to ITV Studios revenues, with a healthy pipeline for the latter consolidating prospects.

From an investment perspective, most of the metrics are moving in the right direction, with ITV remaining cash generative and the balance sheet looking healthy. Online revenues continue to grow exponentially, and the joint venture into the US via "Britbox" is also beginning to gain traction. 

Meanwhile, an increase to the dividend shows signs of confidence in prospects and underlines an already robust 4.6% yield.

Source: interactive investor      Past performance is not a guide to future performance

Of course, challenges remain, not least of which is that ITV is increasingly in the company of the likes of Netflix and Amazon, where competition will not abate in the foreseeable future. 

In addition, whilst there is a lessening reliance on UK advertising income, it still nonetheless represents a significant proportion of revenue and is therefore at the mercy of a decrease in spending on ads in the event of an economic downturn.

Even so, the company clearly has a plan. The share price over the last year has been held back by investors waiting to see how the strategy is unfolding, and a 3% dip compares to a 4.5% rise for the wider FTSE 100. 

However, over the last three months the shares have risen 18% and this could be more indicative of the present mood, with the general view of the shares coming in at a 'buy'.