ii view: ITV advertising surprises to the upside

The success of its Love Island programme has breathed life into media company ITV.

Half-year results to 30 June 2019

• Revenue down 7% to £1.47 billion
• Total advertising revenue down 5%
• Adjusted profit down 13% to £327 million
• Interim dividend flat at 2.6p per share

Chief executive Carolyn McCall said:

"ITV delivered another good viewing performance in the first half of the year. Online revenues grew strongly up 18% despite tough comparatives, with Love Island providing a strong finish to the half. This was reflected in better than expected total advertising revenue. The economic and political environment remains uncertain but we are very focused on delivering our strategy and creating a stronger, more diversified and structurally sound business to enable ITV to take advantage of evolving viewing and advertising opportunities."

ii round-up:

ITV (LSE:ITV) is a TV producer and broadcaster, making and distributing content on multiple platforms globally.

It runs 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; ITV Studios, which creates and produces content in the UK and internationally. 

Given the success of streaming services such as Netflix (NASDAQ:NFLX), ITV is also looking to launch its own subscription payment TV streaming service. In conjunction with the BBC, a £5.99 per month service called BritBox will launch later this year, showcasing British programmes and boxsets. 

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

ii view:

Viewing figures, sporting events and economic downturns can all influence customer demand for advertising. More recently, the rise of streaming entertainment competition such as Netflix and Amazon (NASDAQ:AMZN) have added challenges. 

From an investment prospective, a forward price earnings (PE) valuation in high single-digits and at a discount to the 10-year average certainly looks attractive, as is a prospective dividend yield of over 7%. However, ITV still relies too much on advertising, and whether enough uncertainty has yet been removed to make the shares attractive for investors is still questionable. 

Positives: 

• First-half ad revenue fell by less than expected
• Cost-cutting initiative underway o partly offset investments
• Tie-up with BBC for new subscription video on demand service

Negatives:

• Economic and political uncertainty hampering demand for advertising
• Events like football World Cup create volatility in ad revenue
• Dividend concerns – cover down to 1.6 times from three-year average of 2.1

The average rating of stock market analysts:

Weak buy