ITV shares still in demand after Q3 results

Up 34% since August, our head of markets assesses the impact of latest numbers on the share price.

ITV (LSE:ITV) is swimming against a strong current, but is making some steady progress.

The company has long since identified changing viewing habits and has cut its cloth accordingly. Advertising revenues are, and will remain, under pressure as the proliferation of content eats into traditional methods of watching television. To this end, and despite an encouraging start to the BritBox joint venture with the BBC, the quest for a share of eyeballs faces formidable competition. 

Quite apart from the increasingly popular offerings from the likes of Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN), Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) have now entered the fray. All of these have an intense desire to make their presence felt and have money to burn in establishing themselves.

Within these third-quarter numbers, we hear that full-year advertising revenues are expected to decline by around 2%, but were marginally positive during the period. Net debt rose by some 8% quarter-on-quarter to over £1.1 billion, although a fair proportion of the £146 million proceeds from the recent sale of the London Television Centre will find its way to paying some of this down. The Rugby World Cup provided some relief to a particularly strong set of comparatives from last year, when the football equivalent was in full flow.

Source: TradingView Past performance is not a guide to future performance

Even so, there are some reasons to be cheerful within the update. The previous success of shows such as "Love Island" (which has successfully translated to the US) will likely be replicated by the imminent return of "I'm a Celebrity", and there have been a number of extremely strong dramas emanating from the ITV stable. 

Indeed, the Studios business is forecast to have a strong second half of the year, with revenues likely to grow by 5% at a margin of between 14% and 16%. Meanwhile, online revenue has seen a significant 23% boost, the 2021 target of 30 million ITV Hub users has already been hit and the expected £20 million of cost savings has been accompanied by a major reduction in the net pension deficit. At the same time, the dividend yield of around 6% is adequately covered and is a clear enticement to income-seekers.

ITV is doing everything in its power both to reduce reliance on advertising income while reacting to the ever-increasing number of options being provided by new and existing entrants. Content remains king and the Studios business is performing, but the shadow of overseas competition looms large. 

The shares have had a rollercoaster run of late, having added 24% over the last three months, but standing down 10% over the last year, which compares to a 4% hike for the wider FTSE 100 index. 

The market consensus of the shares as a 'hold', albeit a strong one, will need a positive catalyst before it can be improved, and this is a tough ask when the competition has so clearly thrown down the gauntlet.