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ITV shares were trading down over 5% in early trading this morning in London as the market digested further bad news from the media giant. ITV has warned of a slow down in advertising revenues, despite a 2% year on year increase in the first half of this year and a 10% surge largely driven by the football World Cup. The big sell-off this morning can be attributed to recognition by investors that ITV shares are no longer the blue chip stock they used to be.

Advertising revenues at ITV fell 6% in August and 2% in September, if measured against the same months a year ago. CEO Carolyn McCall has also been forced to admit that it now looks like advertising revenue in Q4 is going to look similarly rubbish, despite the run up to Christmas, when we usually expect retailers to splurge on tacky festive advertising.

“That suggests that major ad spenders are retrenching and one of those may be Marks & Spencer, whose Christmas marketing campaigns in the past have featured everyone from Paddington to Peter Kay,” says Russ Mould, investment director at AJ Bell.

ITV seems to have woken up and smelled the coffee, realising that the entire face of mass market media entertainment is shifting. Landmark shows like Love Island or events like the World Cup will still bring in some revenues, but ITV is simply not the blue chip media stock it used to be.

McCall reckons investment in new content, via ITV Studios, for example, will help to prop up the brand, but ITV has already allowed emerging competitors like Netflix and Amazon to come into its back yard and eat most of its chickens already. ITV Studios revenue was reported up 10% with organic revenue growth of 10%, but this may be shutting the gate too late.

Most analysts have had ITV shares rated a hold coming into these results, but expect a shift to negative/sell from some of them in coming months. ITV shares had a year low of 141 and they are heading that way now. If they break through the 141 mark they will be into new territory, as you would have to go back as far as 2012 to have been able to buy ITV shares at 140. This simply does not look like a stock that is going to grow a new pair of legs and start competing against some of its leaner and more innovative digital rivals.

ITV shares trade on 10x consensus 2019 earnings at the moment, with a prospective dividend yield of 5.4%.

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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.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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