ITV PLC (LSE:ITV) is expected to get large and much-needed boost from the FIFA World Cup in Qatar, which starts a month from tomorrow, amid a deteriorating advertising market in recent weeks.
UBS said it expects net advertising revenue (NAR) falling 6-13% for European broadcasters in the third quarter, including a 10% decline for the UK, based on industry feedback and its monthly media buyer survey.
Broadcasters are facing a toughening previous comparison period and a deteriorating ad market, the investment bank said, with the media buyer survey responses suggesting a decline in expectations since the previous survey in February.
However, ITV has “upside risk” from the World Cup and is one of the “preferred plays” for UBS’s sector analysts, with a ‘buy’ rating and a 135p share price target that offers more than 130% upside to the last close price.
At this price it trades on five times 2023 earnings, a trough year, with an 8%dividend yield based on the expected payout for 2022, suggesting “significant value”.
If its ITV Studios business can trade on 12-13 times 2023 forecast earnings, then the Media & Entertainment (M&E) business is “attributed virtually no value at current prices”, said analyst Richard Eary in a note to clients.
Due to the toughening comparisons and deteriorating ad market, UBS has cut its EPS forecasts for the sector by up to 6%, but with ITV being one of the exceptions among ad-funded broadcasters as it holds broadcast rights to the Qatar tournament.
ITV’s third-quarter revenues are predicted by UBS to have fallen 3% to £807mln, with TV advertising revenues expected to be down 13% to £425mln.
While the company previously indicated that July and August TV NAR was expected to be down 9% and 18% respectively, the analyst said his estimate is below ITV’s implied guidance “following more bearish feedback from media buyers and industry representations implying September trading has been weaker than anticipated”.
ITV Studios net revenues are seen rising 16% to £306m, below the consensus forecast of £333mln.
UBS’s valuation for the shares is based on a discounted cash flow-based sum-of-the-parts methodology using a 9.5% weighted average cost of capital and 0% terminal growth for the M&E business.