ii view: Covid dims the lights at ITV

No dividend and no full-year estimates, but the show must go on. Where now for investors? 

First-half results to 30 June

• Revenues down 21% to £1.22 billion
• Adjusted profit down 50% to £165 million
• Net debt down 34% to £783 million
• No dividend payment 

Guidance:

• Offering no full year estimates

Chief executive Carolyn McCall said:

"This has been one of the most challenging times in the history of ITV. I am really proud of the way that our colleagues have responded to the Covid-19 pandemic and helped demonstrate the enduring value of ITV as a Public Service Broadcaster.  

"While our two main sources of revenue - production and advertising - were down significantly in the first half of the year and the outlook remains uncertain, today we are seeing an upward trajectory with productions restarting and advertisers returning to take advantage of our highly effective mass reach and addressable advertising platform, in a brand safe environment.”

ii round-up:

ITV (LSE:ITV) is an integrated producer and broadcaster. It makes, owns and distributes content on multiple platforms globally.

It operates via three businesses. Broadcast & Online, which includes its free-to-air digital channels.

Direct to Consumer, which includes Subscription Video On Demand (SVOD) via its ITV Hub+, competitions and gaming apps. 

And ITV Studios, which creates and produces content in the UK and internationally. 

For a round-up of these first-half results, please click here.

ii view:

Advertising sales or revenues are driven by a mixture of factors. Major sporting events such as the Football World Cup can drive viewing numbers and therefore increase corporate demand for advertising slots. The popularity of programmes like ‘Love Island’ can raise demand, while the broader economic backdrop also acts a major influence. 

The production and success of its own programmes also feeds into viewing numbers impacting advertising sales. A subsequent ability to sell those programmes to other broadcasts also feeds into the mix.

The coronavirus pandemic has truly dimmed the lights at ITV. Sporting events have been cancelled, production has been halted due to its face-to-face nature, while the seizure of the economy under population lockdowns has left many businesses shuttered. This means that such businesses have no products or services to offer, let alone the funds to buy advertising. 

But the slow reopening of the economy has allowed ITV to begin a return to normality. Lockdown and no sport also left viewers looking for programming alternatives, which many found on streaming services such as ITV’s newly launched BritBox, or the increasing number of rivals such as Netflix (NASDAQ:NFLX), Disney (NYSE:DIS), Amazon (NASDAQ:AMZN) Prime or Apple (NASDAQ:AAPL).  

For investors, the understandable suspension of the dividend is a major loss. The growing array of streaming services, and consumer move towards programmes on demand and away from the more traditional linear channel watching, also offers caution. But debt has been reduced, costs continue to be targeted and its own online viewing rose by 13%. In all, while ITV has slowly become a smaller player in a world of bigger global giants, its strengths and pedigree are unlikely to be completely forgotten. 

Positives: 

• Announced plans to roll out BritBox internationally. 
• Monthly active hub users up 15%

Negatives:

• Younger audiences are increasing watching streaming services 
• Dividend payment suspended

The average rating of stock market analysts:

Buy