ITV PLC (LON:ITV) faces renewed uncertainty due to an expected delay to Brexit, Societe Generale said as it downgraded the stock.
The UK’s departure from the European Union could be delayed past the March 29 deadline after MPs voted against Prime Minister Theresa May’s Brexit deal.
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SocGen cut its rating on ITV to ‘hold’ from ‘buy’, citing Brexit risks, as it assessed European broadcasters.
Free-to-air broadcasters have been hit by tough competition from online streaming rivals like Netflix and Amazon.
But SocGen sees an opportunity for traditional broadcasters like ITV in subscription video on demand (SVoD).
It estimates incremental revenues for incumbent broadcasters could range between 10% to 65% of current advertising in a central and bull case, respectively.
“This is an admittedly wide range due to low visibility, but we note that investors are currently attributing nil value to European broadcasters’ OTT (over the top, video on demand) projects,” SocGen said.
SocGen added that the “fear curve” has continued to deteriorate for free-to-air broadcasters, which combine the so-called Netflix factor and cyclical exposure.
But the broker said the impact of online streaming on viewing patterns is already factored into current valuations and there is room for free-to-air broadcasters to participate in the growing trend towards video on demand.
“A startling statistic in this respect was provided by Netflix within its FY18 results, as the company now estimates it accounts for 10% of US viewing hours, which is an impressive level in absolute terms given the US TV ecosystem fragmentation, but that also needs to be put into perspective given a 50%+ penetration, and the non-ad nature of this audience inventory.”
In afternoon trading, shares in ITV edged up 0.45% to 134.30p.