Morgan Stanley has taken the red pencil to forecasts for ITV plc (LON:ITV) amid worries over advertising spend, leading it to reduce its target price for the FTSE 100-listed broadcaster to 190p from 210p.
In a note to the US investment bank’s analysts noted that media buyers are indicating that ITV’s net advertising revenue (NAR) has fallen by around 7% year-on-year as demand from supermarkets, High Street retailers and telcoms remains weak, offsetting growth in digital advertisers.
READ: ITV set to disappoint as post-World Cup viewing figures tail off
They said they now see ITV’s fourth-quarter NAR falling by 5%, taking full-year 2018 NAR to -1.5%, down from -0.5%.
The analysts said the combination for 2019 of UK economic uncertainty, poor advertising momentum and the absence of the FIFA World Cup is a tough backdrop, leading it to reduce 2019 NAR growth to -1.8% from -1%.
As a result, they added, their earnings per shares (EPS) forecasts drop by 2% for 2018 and by around 3%-4% per annum for 2019 to 2022 meaning that in the year-to-date the bank’s 2019-22 EPS forecasts have dropped by 12%-17%.
The analysts pointed out: “ITV has very good viewing figures in 2018 (absolute impacts up, third year of share gain) and yet ad growth looks as though it will end the year down.
“This disappointing outturn reflects the structural shift of advertising away from TV. The pressure on linear audiences caused by rising OTT consumption means we think ad growth will be close to zero for linear broadcast networks over the next five years.”
They added: “With its Studios business ITV is structurally well positioned versus its broadcaster peers. With zero pa eps growth 2017-22, it needs a UK cyclical uplift to get the shares moving. Multiples are low but EPS forecasts have steadily eroded.”
In late afternoon trading, ITV shares were 0.7% lower at 152.15p. ITV will deliver a third-quarter trading update on November 7.