ii view: ITV battles hard for eyeballs

Launching a new digital platform and offering a forecast dividend yield of over 7%. Buy, sell, or hold?

First-quarter trading update to 31 March

• Total external revenue up 18% to at £834 million
• ITV Studios revenue up 23% to £458 million
• Media & Entertainment revenue up 13% to £545 million

ii round-up:

ITV (LSE:ITV) is an integrated producer and broadcaster. 

Its Media and Entertainment business delivers content through linear TV broadcasting as well as digital on-demand platforms.

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 update, please click here.

ii view:

Employing over 5,000 people, ITV is currently pursuing three core strategic pushes. Its Media & Entertainment business is looking to retain its strong advertising position. At its studios division, it is expanding its programme content, diversifying the business by genre, geography and by customer. Finally, it is building its streaming business, making more content available and launching a new streaming platform known as ITVX later in the year. It is targeting a doubling of digital revenues to at least £750 million by 2026, driven by a doubling of streaming viewing.

For investors, the decision to aggregate its streaming platforms into one new platform, ITVX, comes with costs. Investments will now need to be swallowed, potentially impacting on profit margins. Content remains hugely important, but the new online service takes on established industry giants such as Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Walt Disney (NYSE:DIS). The sporting calendar also influences its advertising income. 

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On the upside, diversity of revenues remains, with content being sold to other broadcasters, advertising sales made at its TV channels and subscription fees taken from its existing BritBox streaming channel. A refocusing of its streaming offer is now underway. The estimated one-year price/earnings (PE) ratio sits comfortably below media rivals such as Netflix, suggesting its shares are not expensive, while the stock now stands on a forecast future dividend yield of over 7%. That income plus consensus analyst fair value of over 100p might convince investors to remain patient, but ITV remains a work in progress and there is clearly execution risk here.

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