After a streak of five annual special dividends, shares in ITV (ITV) have fallen 6.3% to 162.25p as it fails to announce another special dividend alongside its latest set of full year results.
This looks to be the main disappointment in an otherwise pretty solid set of numbers, the first announced under new chief executive Carolyn McCall.
We discussed in this article the risks associated with investing in a company on the basis it pays special dividends. Investors get used to the extra cash reward and hate it when the company stops paying special dividends.
ITV’s special dividend has been shelved due to the ‘strategic refresh’ being pursued by McCall but Liberum notes the company is well below its targeted debt ratio and is still generating plenty of cash.
WHAT ELSE HAS THE COMPANY SAID?
ITV’s national advertising revenue, a key metric, is down 5% for 2017 which is in line with previous guidance.
However, the picture is brightening with national advertising revenue expected to be positive in the first half of 2018 and up 1% in the first quarter.
Advertising spend should be boosted by the football World Cup this summer.
IS ITV LINING UP AN ACQUISITION?
Analyst Ian Whittaker believes ITV may be looking to buy STV (STV), the Scottish ITV1 licence holder which he believes would make strategic sense. ‘Another possible option is a switch from paying special dividends to share buybacks,’ he adds.
Whittaker reiterates his ‘buy’ rating on the stock and his counterpart at Shore Capital Roddy Davidson is similarly keen.
Davidson says: ‘We are positive on ITV’s medium-term attractions including: (a) its unrivalled ability to deliver a mass market commercial audience to advertisers via a trusted / well-understood medium; (b) the scale and commercial value of its content portfolio; (c) the prospect of an attractive income progression and strong cash generation (providing firepower for acquisitions, dividend growth and de-leveraging an already mostly geared balance sheet), and; (d) its value as a strategic asset within a consolidating industry (witness the current flurry of activity around Sky (SKY)).’
