Weak guidance on fourth quarter advertising is leading investors to switch off free-to-air broadcaster ITV (ITV) this morning.
Reading between the lines, Brexit appears to be to blame with ITV referencing the ‘increasingly uncertain economic environment’ for softening in ‘Family NAR’ or TV advertising in plain English.
As a result, total advertising is expected to be down 3% in the fourth quarter and broadly flat for 2018 as a whole.
We discussed the appointment of Chris Kennedy, who will reunite with his former boss at EasyJet Carolyn McCall from February 2019, earlier this week. Today’s news will ramp up the pressure on the pair to revive the company’s fortunes and potentially consider more radical action to reduce the dependence on volatile TV advertising.
INCREASING THE PRESSURE FOR RADICAL ACTION
Historically ITV has bid for Entertainment One (ETO) and earlier this year was linked with a bid for media group Endemol. Both deals would have increased the company’s exposure to TV production.
Its current production business ITV Studios is growing and performed in line with expectations for the first nine months of the year but still accounts for less than half of group revenue.
Online advertising also performed well, though year-on-year growth slowed slightly from the first half level of 48% to 43%.
Despite being disappointed by the Q4 outlook, Shore Capital analyst Roddy Davidson, sticks with his ‘buy’ recommendation. He sees four key medium-term attractions to the stock.
‘(a) its unrivalled ability to deliver a mass market commercial audience to advertisers via a highly trusted medium;
‘(b) the growing scale and commercial value of its international content portfolio (9k+ hours produced p.a., 40k hour library, produces / sells in 11 / 196 countries);
‘(c) strong cash generation (providing firepower for acquisitions, dividend growth and de-leveraging an already modestly-geared balance sheet), and;
‘(d) its value as a strategic asset within a consolidating industry.’
