Unlock Editorial Digest for Free
FT editor Roula Khalaf chooses her favorite stories in this weekly newsletter.
ITV TV series Mr Bates vs Post Office The impressive achievement prompted the UK government to take action against the UK's decades-long Horizon accounting software scandal. Broadcasters need a similar impact on their share prices and profitability.
Shares of the nearly seven-year-old company have fallen 60% over the past four years as it has struggled to shed its reputation as a former growth stock still tied to traditional “linear” television. The worst decline in television advertising since last year's financial crisis hasn't helped either.
ITV has long sought to escape the vagaries of TV advertising revenue. CEO Carolyn McCall is working on another effort. This includes cutting costs and investing £160m in streaming service ITVX, as well as further expanding its production arm to produce shows for its own channels and for streamers such as Netflix.
On the face of it, ITV's recent full-year results don't look promising. Adjusted earnings fell by almost a third year-on-year to 489 million pounds. Since 2017, the metric has fallen by more than 40%.
But ITV Studios, which accounts for half of total revenue, grew revenue by 4% last year, keeping the decline at the group level at 2%. Profits in the production division rose 10% to £286m – a positive outlook but not enough to offset the 56% decline in media and entertainment.
Broadcasters are likely to limit spending until there is greater certainty in the advertising market. But ITV Studios' revenue is expected to grow by an average of 5% per year between 2021 and 2026 – not surprising, but better than the wider market – while maintaining profit margins of 13-15%.
Recent deals suggest the market isn't entirely bullish on the studio business. Investment group RedBird IMI's £1.15bn acquisition of rival production company All3Media last month represents an enterprise value/earnings before interest, tax, depreciation and amortization (EBITDA) multiple of just under 12 times. Even applying a less generous sum-of-the-parts multiple to ITV Studios suggests the market is undervaluing the studio business.
Nonetheless, ITV shares rose on the day of the results on expectations of improved TV advertising revenue. Crucially, it has also embarked on a £235m buyback – equivalent to nearly 10% of its market capitalization – funded by the recent sale of its stake in the Britbox streaming service.
ITV is slowly changing. But it hasn't yet convinced the market to view it as a pre-growth linear broadcaster.
nathalie.thomas@ft.com
#ITV #39Mr #Bates #Post #Office39 #moment
