Interactive Investor

Why ITV shares are tipped to rally 20%

9th March 2023 15:17

by Graeme Evans from interactive investor

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A week after annual results, one City analyst is backing the broadcaster’s new strategy to generate big upside for shareholders.


Early success for ITV (LSE:ITV) in the battle to attract eyeballs to its new streaming service today led a City bank to upgrade the broadcaster to a “buy” rating with 20% upside for shares.

Deutsche Bank’s improved stance on ITV followed last week’s annual results, when the FTSE 250-listed company reported an encouraging take-up of its new ITVX service, having attracted 1.5 million registrations and lifted total streaming hours by 69%.

It said it has also been successful in attracting harder-to-reach lighter viewers, who are now spending longer on ITV's digital content.

Deutsche Bank said the performance of ITVX since December looked encouraging and that the focus on an advertising-based video on demand strategy appeared to be the right one.

It raised its price target from 90p to 107p, a level that compares with 87p this afternoon and the 55p seen during September’s slump for UK-focused stocks.

The economic uncertainty facing advertisers continues to cloud the investment case, but ITVX’s encouraging start has eased some of the City’s earlier concerns about the cost and risks of launching a new platform into an already crowded digital market.

The bank said: “We turn more positive on ITV as macro risks aside, we believe its streaming strategy appears to be the most appropriate in the current environment and the investment needs appear to be well-managed.”

ITVX has been designed to compete with the global streaming giants through its own slate of original content. Unlike subscription-driven streaming revenue, the management's objective is to generate most of the targeted revenue from advertising.

Chief executive Dame Carolyn McCall said last year that ITVX was being launched from a position of “financial and creative strength” and that the move would support a doubling of digital revenues to £750 million by 2026.

It is looking for 20 million monthly active users within three years and 2.5 million paying ITVX subscribers by 2026.

Deutsche Bank said: “While the reinvestment risks might be steep given ITV has to compete on content with the global streamers and language is not a unique advantage, if ITVX has a better-than-expected take-up this could prove to be an upside risk.”

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