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This year has proved to be a rollercoaster for ITV (LON:ITV), one that CEO Dame Carolyn McCall may wish to forget.

An unprecedented collapse in advertising revenues in March due to the Covid pandemic led to the company’s demotion from the FTSE 100, slashing 60% off the broadcaster’s market value over the year.

ITV shares opened trading on 23/11/20 at £0.92p, down from last week’s peak of £0.97p, with plenty of upside on its 52-week trading range. Share performance is down -33.53% over the year, but up 48.45% over the past three months. Its price to earnings ratio of 12.1x compares well with the UK media sector’s 17.7x and the UK market’s 20.1x.

ITV’s impressive return on equity

ITV boasts an impressive return on equity of 31.4%, well above the media industry average of 6.9%. Earnings are expected to show solid growth over the next three years, with a future ROE forecast to be 37.7% in three years’ time. Analysts are forecasting a solid 24.4% annual earnings growth, though this lags the industry’s 53.1% and the UK market’s 26.7%.

The impressive ROE may be partly due to ITV’s high level of debt, leading to a debt/equity ratio of 115.1%, which is less reassuring. However, the debt and the interest payments are well covered by operating cash flow (49.5%) and earnings before interest and tax (18.6x).

Hopes are being pinned on BritBox

So why invest in ITV? Last month, McCall announced ITV would restructure the business around its streaming services. The company is pinning its hopes on BritBox, the online video subscription service jointly launched in North America by the BBC and ITV in 2017 to meet a growing demand for online streaming services. Viewers have grown increasingly frustrated by terrestrial television, with the younger generations in particular showing the least interest. The trend has accelerated thanks to the Covid lockdown this year, which has left people at home and hungry for entertainment.


BritBox is entering an already crowded and competitive streaming market. Big-budget providers such as Netflix and Apple dominate the sector, but viewing habits are changing and BritBox is carving out a niche in the market with an offering of ‘best of British’ drama.

BritBox already has 1.5 million subscribers in the US and Canada; UK subscriber numbers, since launch this time last year, have not been disclosed but are described as “ahead of plan”; the launch in Australia went ahead as planned this year, unaffected by the Covid outbreak; and plans are in place to launch in 25 more countries.

For ITV, the other side of the BritBox coin is its production division ITV Studios, the largest global producer of entertainment programmes, which will find in BritBox a ready-made and growing market for its productions.

Delivering ITV’s third quarter trading update, McCall was upbeat. We like her decision to restructure the business around its streaming services as a future-proofing strategy. And, with 85% of its production schedule back on track after the lockdown and with healthy finances in place, ITV looks set to come out of this rollercoaster year in good shape and ready to take on the competition.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

James Norris

James Norris

James is a highly experienced writer and editor, gained from more than 20 years in the financial services industry, in particular wealth management and asset management.

He initially worked as a financial journalist for a number of leading media brands, including the FT Group, Financial News, Euromoney and Incisive Media, covering most aspects of the asset management industry. More recently, James switched to work as an in-house content specialist for fund management and wealth management groups, including JP Morgan Asset Management, Quilter Cheviot Investment Management, AXA Investment Managers and Invesco Perpetual.

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