ii view: high yielder ITV battles global giants
Cutting costs, reducing net debt and offering an attractive dividend yield. We assess prospects for this FTSE 250 company.
2nd December 2024 11:24
by Keith Bowman from interactive investor
Nine-month trading update to 30 September
- Total revenue down 8% to £2.74 billion
- Media & Entertainment (M&E) revenue up 4% to £1.52 billion
- Studios revenue down 20% to £1.22 billion
- Net debt down 15% from a late June to £437 million
Chief executive Carolyn McCall said:
"ITV's good strategic progress has continued in the first nine months of 2024 driven by strong execution and industry leading creativity.
"ITV Studios is performing well despite the expected impact of both the writer's strike and a softer market from free-to-air broadcasters. ITV maintained its unique position in linear television through the quality and breadth of its schedule, and ITV1 was voted Channel of the Year at the Edinburgh TV Awards.”
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ii round-up:
ITV (LSE:ITV) is an integrated producer and broadcaster.
The group’s Media and Entertainment business delivers content through linear TV broadcasting as well as via digital on-demand or its streaming platform ITVX.
The Studios business produces, owns and distributes content for both ITV channels and third parties in the UK and overseas.
For a round-up of this latest trading update announced on 7 November, please click here.
ii view:
Headquartered in London, ITV employs around 6,500 people. The Studios business generated most revenues in 2023 at 51%, with Media and Entertainment (ME) the balance. The biggest slice of adjusted profit (EBITDA) was also made by Studios at 58%, with ME the balance of 42%. ITV’s 2026 strategic vision is to become the leader in UK advertiser-funded streaming as well as becoming a growing global force in content. The internet and the globalisation of media now leave it competing against streamers such as Netflix Inc (NASDAQ:NFLX), Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN) owned Prime.
For investors, the importance and volatility of the sporting calendar in generating ad sales cannot be ignored. Events outside of management’s control such as actor strikes have impacted year to date performance. Creativity in making new popular programmes is a difficult ingredient to find. Dividend cover (the number of times earnings per share cover the dividend per share) of 1.8 times is below the three-year average of 2.9 times, while competition now includes streaming giants such as Alphabet owned YouTube, Disney, and even China’s TikTok.
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On the upside, the globalisation of media via the internet may eventually see industry consolidation and included an eventual takeover of ITV. A diversity of revenues exists from programme content sales to monthly streaming subscription fees for ITVX and ad sales. Costs continue to be cut, net debt has been reduced, while exposure to economically sensitive advertising sales can be a positive within a growing economic environment.
On balance, and while a forecast dividend yield of over 6.5% will appeal to income seekers, the increasingly global business of media now arguably leaves ITV as a small fish in a big pond.
Positives:
- Diversity of revenues
- Attractive dividend (not guaranteed)
Negatives:
- Intense global competition
- Advertising revenues are economically sensitive
The average rating of stock market analysts:
Strong hold
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