The broadcaster held its first investor day in more than 11 years on Wednesday when it spoke about the progress it was making in its strategy to diversify revenue streams away from TV advertising following weak sales in the UK.
“Everything said was very sensible, but most investors currently believe that the free-to-air model is under existential threat,” Barclays said.
“This means that they won’t believe ITV’s medium-term plan until earnings improve. Unfortunately, UK television advertising seems to be weakening in the fourth quarter and we downgrade our earnings per share forecasts by 2-4%.”
Barclays maintained an ‘equal weight’ rating on the stock but cut its target price to 180p from 185p.
The bank noted that ITV’s management admitted that advertising was unlikely to improve until there is certainty on Brexit, which could take another nine months.
Endemol Shine bid speculation
Barclays said speculation about whether ITV would put in an offer to buy Endemol Shine was another source of uncertainty.
ITV declined to say whether it had bid for Endemol Shine, the Netherlands-based production company that makes Big Brother, Masterchef and Peaky Blinders.
The Sunday Times reported that ITV had entered the bidding race for Endemol, which has been put up for sale by owners private equity firm Apollo and Twenty-First Century Fox (NASDAQ:FOXA)
Analysts at Liberum said: “There was nothing said on a potential Endemol bid but ITV stated it was happy with the state of its current production assets, which may suggest a bid is less likely.”
“However, given the market’s attention on current TV trading and an Endemol bid, the CMD is unlikely to provide a catalyst until the market feels comfortable on both these situations.”
Future earnings growth to come from new revenue sources, says Liberum
Liberum repeated a ‘buy’ rating and target price of 275p on ITV. It said it believes ITV will generate nearly 45% of its future earnings growth from new revenue sources, including content production, direct-to-consumer and online video on demand.
ITV, which produces hit reality TV shows Love Island and I’m a Celebrity…Get Me Out of Here!, in August revealed that it was backing a new video streaming service for mobile phones.
The company joined major Hollywood studios including Walt Disney Co. (NYSE:DIS) and Fox, two major Wall Street banks and the billionaire Walton family in a US$1bn investment for the new venture, named NewTV.
Shares in ITV were up 0.42% to 153.65p in late morning trading.