ii view: ITV's streaming investment now at a peak

First-half results to 30 June

• Media & Entertainment (M&E) revenue down 9% to £964 million
• Studios revenue up 8% to £1 billion
• Adjusted profit (EBITDA) down 52% to £152 million
• Interim dividend unchanged at 1.7p per share
• Net debt up 18% from a year ago to £724 million

Guidance:

• Remains confident in delivering at least £750 million of digital revenues for M&E division by 2026
• Continues to expect Studio division to deliver at least 5% average organic revenue growth per annum to 2026

Chief executive Carolyn McCall said:

“The continued momentum behind ITV’s strategic transformation delivered strong growth in Studios and Digital revenues in the first half of the year, largely offsetting the expected weakness in the UK advertising market – with total revenue declining just 1% in H1, even in a very tough advertising market.

“As we said at the full year results in March, 2023 is the year of peak net investment in our
streaming business and we expect profit to grow from here.” 

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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 such as ITVX. 

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 announced on 27 July, please click here.

ii view:

A constituent of the FTSE 250 index, ITV employs over 7,000 people. Group strategy includes expanding its UK and global production business, growing its streaming business now under the ITVX platform and optimising its Broadcast business. During its last full financial year, the UK generated its biggest slice of revenues at almost two-thirds, with the balance split relatively evenly between the USA and other countries.  

For investors, the challenging economic backdrop and its impact on advertising sales is not to be overlooked. The importance of the sporting calendar in generating ad sales warrants thought. A push towards streaming via ITVX also leaves it competing against global players such as Netflix (NASDAQ:NFLX), Walt Disney (NYSE:DIS), and Amazon's (NASDAQ:AMZN) Prime TV, while content production at the Studios division goes toe-to-toe with the same global players. 

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More favourably, a diversity of revenues exists from programme content sales to monthly streaming subscription fees for ITVX and advertising sales, and this current financial year is expected to prove the peak in investment costs for its streaming business. An estimated one-year price/earnings (PE) ratio is also comfortably below media rivals such as Netflix, suggesting the stock is not obviously expensive, while the shares currently offer a forecast dividend yield in the region of 7%.

On balance, and while ITV remains a work in progress, a consensus analyst estimate of fair value at over 90p per share implies longer-term optimism in the City remains. 

Positives: 

• Diversity of revenues
• Attractive dividend (not guaranteed)

Negatives:

• Intense global competition
• Advertising revenues are economically sensitive 

The average rating of stock market analysts:

Buy