ii view: ITV details digital acceleration strategy

A new digital platform is planned and the dividend is being paid again. We assess prospects.

Full-year results to 31 December 2021

• External revenue up 24% to £3.45billion
• Pre-tax profit up 48% to £480 million
• A final dividend of 3.3p per share (2020: Nil)
• Net debt down 24% to £414 million

Chief executive Carolyn McCall said:

"Last year's financial performance together with the successful completion of the first phase of our More Than TV strategy sets ITV up for Digital Acceleration.  We look forward with confidence to the launch of ITVX in Q4 and with the above market revenue growth of ITV Studios, we are confident that we will become a leader in UK streaming and an expanding global force in content."

ii round-up:

ITV (LSE:ITV) is an integrated producer and broadcaster. 

Its Media and Entertainment business delivers content through linear TV broadcasting as well as digital on-demand platforms.

Its Studios business produces, owns and distributes content for both ITV channels and third parties in the UK and overseas. 

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

ii view:

ITV's Media and Entertainment includes its free-to-air digital channels and online services such as its ITV Hub and BritBox. It generated around 56% of revenues in this latest year. Its studios business the balance. Under its More Than TV Strategy, ITV has been expanding and strengthening its direct-to-consumer relationships and growing its UK and global production or content business. 

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Now under phase two, called Digital Acceleration, management hopes to supercharge its streaming business with a digital-first content strategy. It hopes to double digital revenues to at least £750 million by 2026, driven by a doubling of streaming viewing. A new streaming platform known as ITVX is scheduled for launch in the fourth quarter of this year. Digital-first content investment of £20 million will be made in 2022, with £160 million to follow in 2023 for ITVX. It hopes that annual revenue growth will cover the incremental investment cost of ITVX by 2026. 

For investors, the decision to aggregate its streaming platforms into one new platform, ITVX, comes with costs. Investments will now need to be swallowed, potentially impacting profit margins. Content remains hugely important, and the new online service takes on established industry giants such as Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Walt Disney (NYSE:DIS). 

More favourably, these latest results saw total advertising revenue up by a quarter and at their highest ever. The valuation on an estimated future price/earnings basis is comfortably below rivals like Netflix, while the estimated future dividend yield stands at over 5.5%. In all, and while ITV may now be a smaller player in a world of bigger global giants, a current consensus fair value in excess of 120p a share may put the shares on the radar of investors. 

Positives: 

• A recovery in advertising revenue
• Back paying a dividend

Negatives:

• Now competing against global giants such as Netflix
• Advertising revenues are economically sensitive 

The average rating of stock market analysts:

Buy