Now is probably not the time to pick up shares in the broadcaster ITV PLC (LON:ITV), according to one influential City broker, which Friday trimmed back its valuation of the stock.
Barclays Capital, publishing a note in the wake of Thursday’s nine-month update, cautioned clients not to get involved at this stage.
However it conceded with shares trading on forward earnings multiple of just 10-times “some investors might be tempted to call ITV's bottom and buy the shares today”.
“In our view, this is premature because buying a recovering broadcaster has historically worked only when advertising stops deteriorating,” Barclays added.
It brought down its price target by 10p a share to 180p, rates the stock ‘equal weight’ and says its pick of the sector is the advertising giant WPP PLC (LON:WPP).
On Thursday ITV delivered a solid 5% increase in revenues for the nine months ended September, although there were worries over the performance of its production arm, ITV Studios.
Net advertising revenues were down 3% in the last quarter.
The company said it expects its earnings for the year to broadly in line with those for 2015 as it revealed it is on track to deliver cost-savings of £25mln.
Chief executive Adam Crozier is sticking to the task of diversifying and growing the maker of Coronation Street and I’m a Celebrity.
“We remain committed to our strategy of rebalancing and strengthening ITV and building a global content business of scale and we see clear opportunities to continue to invest for further growth across the business both organically and through acquisitions,” he told investors.
“The strength of our balance sheet and our underlying cash flows allows us to do so while at the same time delivering sustainable returns to our shareholders."
US brokerage Jefferies said a call with management on Thursday revealed ITV hadn’t ruled out returning at least some of the £1bn on its balance sheet.
The broadcaster also assuaged concerns over momentum behind ITV Studios, the company’s production arm.
Analyst Tamsin Garrity pointed out the shares trade on just 11.5-times next year’s EPS, which makes ITV the cheapest European-quoted broadcast stock. For the income hunters it boasts a 7% dividend yield.
Of the 17 analysts logged by the Broker Forecasts site as following ITV, nine are ‘buyers’ of the stock. Only one has a ‘sell’ rating, while the others agree with Barclays in deeming the shares fully valued.
The consensus price target has come down from 280p a share to 228p – though that is still well ahead of the current market price of 170p.