ii view: ITV drama as sales guided lower

First-half results to 30 June

• Total revenue down 3% to £1.9 billion
• Media & Entertainment (M&E) revenue up 7% to £1.03 billion
• Studios revenue down 13% to £869 million
• Adjusted profit was up 40% to £213 million
• Net debt down 29% from a year-ago to £515 million

Guidance:

• Now expects full-year ITV Studios revenue to be down low-single digits compared with a previous estimate for no change

Chief executive Carolyn McCall said:

"ITV has been transformed over the last five years and we continue to build upon this. We are confident of delivering increased adjusted EBITA this year, following the year of peak net investment in 2023, and are on track to deliver our 2026 KPI (key performance indicators) targets."

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ii round-up:

Broadcaster and programme maker ITV (LSE:ITV) detailed mixed first-half results as it again flagged a move away from peak 2023 investment given its refocusing towards streaming and ITVX. 

The Euros football tournament helped drive up first-half advertising revenues by 10% year-over-year, which combined with an ongoing focus on cost savings, aided a 40% jump in adjusted profit to £213 million. However, disruption caused by the US writers' and actors' strikes and lower demand from free-to-air broadcasters in Europe, is now expected to leave full-year Studio or production related revenues down by low-single digits as opposed to a previous forecast of flat. 

Shares in the FTSE 250 company fell 5% in UK trading having come into this latest news up by close to a third year-to-date. That’s similar to global streamer Netflix Inc (NASDAQ:NFLX) and comfortably ahead of a one-tenth fall for Sky TV owner Comcast Corp Class A (NASDAQ:CMCSA). The FTSE 250 index itself is up 6% during 2024.  

ITV cost savings during the first half came in at £23 million. The UK’s biggest operator of commercial channels is on track to deliver £40 million of annual savings in 2024. Of that, £30 million is from newly found savings and £10 million as part of its existing £150 million programme. 

Aided by ad demand, Media & Entertainment (M&E) divisional sales rose 7% to £1.03 billion during the period. Studio or production related revenues fell 13% to £869 million, hindered by previous Hollywood strike disruption. Total group revenues fell 3% to £1.9 billion.  

ITV net debt reduced 29% from a year-ago to £515 million. Proceeds from its previous sale of BritBox International are supporting its continued £235 million share buyback programme.

A declared interim dividend of 1.7p per share stayed unchanged from last year.  A third-quarter trading update is likely around mid-November. 

ii view:

Employing over 6,500 people and a constituent of the FTSE 250 index, ITV is an integrated producer and broadcaster. Its Media and Entertainment division 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. The internet and the globalisation of media now leave it competing against streamers such as Netflix, Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN) owned Prime.

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For investors, the importance and volatility of the sporting calendar in generating ad sales is not to be ignored. Events outside of management’s control such as actor strikes have impacted business, while costs generally for businesses remain elevated. An estimated price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap, while competition now not only includes decades old rival, the BBC, but global streamers such as Alphabet Inc Class A (NASDAQ:GOOGL) owned YouTube, The Walt Disney Co (NYSE:DIS), and even China’s TikTok.     

More favourably, economically sensitive advertising could see a boost from expected interest rate cuts. A diversity of revenue exists from programme content sales to monthly streaming subscription fees for ITVX and advertising sales. Costs continue to be cut, while the globalisation of media via the internet may eventually see some consolidation across the industry and potentially including ITV.

On balance, and while some caution looks sensible, a forecast dividend yield of over 5.5% is likely to keep income investors tuned in.  

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