Still down sharply since the crash, the broadcaster has rallied today. Our head of markets explains why.
ITV (LSE:ITV) has been quick to detect both opportunities and restraints resulting from the current environment and has cut its cloth accordingly.
The pandemic is something of a double-edged sword for broadcasters.
On the one hand, an increasingly captive viewing audience will benefit the likes of ITV. However, competition for eyeballs is fierce with names such as Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and the recently launched Disney+ being formidable adversaries.
In addition, advertising revenue, long since the major driver of income, is buckling under pressure on a number of fronts.
Prior to the pandemic, advertisers were increasingly using social media and websites to sell their wares, and there are now additional constraints on budgets across many sectors, where the advertising budget will be one of the first to be sacrificed.
As such, for this reporting period, ITV’s advertising revenues edged up 2%, but a subsequent 42% decline in April has resulted in a year-to-date figure which is down 9%.
The other significant strand of income is the Studios business, down 11% in the period and accounting for nearly half of revenues. The outbreak has meant that studio production has largely been mothballed, although of late there are a couple of shows where resumption of filming has been announced following some easing of lockdown restrictions, such as in Germany and Australia.
Meanwhile, net debt has risen by 5.8% to £851 million since the end of December, although ITV has access to several lines of significant potential credit and £100 million of unrestricted cash which will ease cashflow concerns for some time, if necessary.
More positively, the ITV Hub continues its progressive growth, online revenues generally are up 26% and the group has seen good demand for its library content.
Source: TradingView. Past performance is not a guide to future performance
In a similar vein, in what is surely an optimal environment for take-up given lockdown restrictions, the BBC joint venture BritBox is also showing early signs of promise, both in terms of free trial starts and subscriptions.
Elsewhere, an additional £30 million of cash savings have been identified, there has been a £100 million reduction in the programme budget, while the removal of the dividend and a £150 million payment holiday to the pension scheme will further alleviate capital constraints.
Although the general fortunes of the company will at some point revert to a reliance on regular large sporting events, a benign economic environment generally and an ability to generate original and compelling content in the battle for share of viewing, any recovery could be in line with the broader market.
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Indeed, the shares have staged a noticeable recovery over the last month amid general optimism on the easing of restrictions, but nonetheless remain down by 46% over the last year, as compared to a 21% decline for the wider FTSE 100 index.
ITV will be hoping that however deep a recession may be, it is equally brief which could enable revenues to recover quickly. Although the company itself has withdrawn guidance for the immediate future, the market is optimistic on recovery prospects, with the general view of the shares as a “buy” remaining intact.
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