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ITV targets promotion to FTSE 100 after Q1 update

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Relegated from the blue-chip index last year, the shares have bounced back as the outlook improves.

The clouds are clearing for ITV (LSE:ITV) as advertising revenues begin to rebuild.

For this period, the 2% increase in total revenues is an achievement, given that the first three months of this year were subject to lockdown restrictions, as opposed to the first quarter of 2020 when they were for the most part unaffected.

In contrast, the coming months will be up against easier comparatives and, in June, the Euros football tournament and the return of the channel’s popular “Love Island” series should provide further boosts. In the meantime, ITV has seen April advertising revenues climb by 68%, and expects growth of 85% in May and 85-90% in June.

At the same time, the Studios business is edging back towards full production and revenues for the period grew by 9%. While there may still be restrictions in parts of Europe, for example, the general easing of lockdowns is positive for an increasingly important growth area within the company.

Despite the pressures on cashflow, ITV remains in a relatively comfortable position. Although net debt has increased by 2%, the company’s access to liquidity of £1.4 billion is a significant safety net as its fortunes improve and the anticipated cost savings are on track.

Of course, it is not all plain sailing, as evidenced by first-quarter advertising revenues which dropped by 24% and Media and Entertainment by 3%. In terms of its alternative offerings such as the ITV Hub and the BBC joint venture BritBox, both are progressing but face the continual and considerable competition from some of the US giants in particular such as Disney (NYSE:DIS), Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX), who have the deepest pockets.

Strategically, ITV has been attempting to lessen the reliance on advertising with growth in the Studios business for some time and this remains a work in progress. In the currently competitive environment, content is king and the importance of ITV’s original content output will remain a vital differentiator.

Meanwhile, the share price has seen the benefit of improving fortunes and has risen by 73% over the last year, as compared to a rise of 39% for the wider FTSE 250 index. In the last six months alone, the price has added 65% and at current levels ITV could be a contender for a return to the FTSE 100 in June, from which it was relegated in September. Investor support for strengthening prospects is also in evidence, with the market consensus of the shares as a buy remaining intact.

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