ITV PLC (LON:ITV) faces more negatives than positives in the near term after a 30% recovery in its share price from initial post-Brexit lows, Panmure Gordon said today.
Panmure cut its rating on the UK broadcaster to ‘hold’ from ‘buy’ and lowered its target price to 225p from 265p, saying it travels cautiously ahead of the company’s preliminary results on 1 March.
Risks include net advertising revenue (NAR) weakness, lacklustre trading in the Studios business, management changes and content acquisitions, the broker said.
Panmure expects ITV’s full year results will reveal that NAR came under pressure in the first quarter.
“The first quarter will be adversely affected by the timing of Easter (April this year versus March in 2016) as well as the NAR boost from consolidating UTV (c1.7% per month) cycling out from March 2017 onwards,” analyst Jonathon Helliwell said.
The broker predicts a 5% drop in NAR for the year and a 7% decline in the first quarter.
Panmure also noted that its UK production business Studios reported weakness in underlying trading in the first nine months, due to programme deferrals and cancellations. ITV is investing heavily in new scripted content into 2017.
Management change has become a heightened risk, Panmure added, following reports the board has hired head hunters to replace chief executive Adam Crozier and chief financial officer Ian Griffiths.
Bid underpins ...
ITV also remains vulnerable to a possible bid, Panmure said, with potential suitors including Liberty, BT, RTL, Viacom and Comcast.
“Bid vulnerability remains an ever-present possibility for ITV in our view, given Liberty’s 9.9% stake and our belief that ITV – despite gradual structural pressures on viewing and advertising share – remains strategically attractive in a converging TV/video market,” Helliwell said.
However, another major content acquisition by ITV seems more likely than a bid for the company itself in the near term. Last August Entertainment One rejected ITV’s takeover bid as it believed the offer undervalued the company.
“While previous content deals by ITV delivered good initial earnings per share (EPS) accretion, the modest and volatile organic performance of Studios since doing these deals has raised concerns over the strategy, and the August 2016 approach to Entertainment One weighed down on ITV’s shares, despite promising significant further EPS accretion,” Helliwell said.
Panmure reduced its full year EPS estimate for 2016 to 16.3p from 16.7p, in line with ITV’s flat guidance issued in November. The broker reiterated its full year dividend forecast of 12.25p per share, including an ordinary dividend of 7.25p and a 5p special dividend.
Shares were trading 0.10% lower around the midday mark.