Broker tips: ITV, Elementis, Merlin Entertainments

ITV's results did not offer many positives for Barclays, which downgraded the shares and cut its target price.Barclays, which moved to an 'equal weight' rating and lowered its price target to 180p from 200p, said results for 2017 were "only in line, unlike previous years" and with the end of its previous special dividend as management want to keep some headroom for M&A.

Moreover, financial pointers for the 2018 and 2019 led the bank to cut its forecasts, with £25m higher programming cost due to sporting events, 5% organic growth in Studios, £35m of adjusted net interest, an adjusted tax rate of 19%, £100m capex, £85m of cash exceptionals and £80m of pension deficit funding.

"Furthermore, ITV new CEO Carolyn McCall’s strategic refresh might end up being eminently sensible but we won’t know its financial impact until, at best, interim results (end of July) or until September’s investor day.

"This creates uncertainty and the fear of re-investment is an overhang," analysts wrote.

Yes, they acknowledged the shares are inexpensive at 11.5 times 2018 forecast earnings, which is "arguably" discounting a 4% TV advertising decline forever, "but valuation without momentum almost never works in European media".

Analysts said that unless advertising accelerates significantly from June onwards, they "struggle to see where momentum would come from".

Elementis’ "legacy" personal care business has more growth potential than was previously apparent, Jefferies said as the broker upgraded the chemicals maker to ‘buy’.

Jefferies analyst Joe Spooner said legacy personal care, though just 9% of group revenues, can play an important part in driving the company’s growth because of its high margins.

Elementis’s reporting suggests the personal care business owned by the company before it bought SummitReheis a year ago has operating margins of 55%. These margins are defensible, Spooner wrote in a note to clients. The outlook for earnings is therefore more solid, he added, upgrading Elementis shares from ‘hold’.

"We've previously underestimated the role ‘legacy’ personal care can play in driving group growth. We believe these sales are very high margin and with continued mid-teen growth can underpin the group growth outlook. [The] intention to provide more category margin detail from the interims may help demystify the moving parts."

Elementis posted annual adjusted operating profit up 32% to $128m (£105m) on 27 February, driven by increased sales at the personal care business. The company said that business “benefited from the first time contribution of SummitReheis and strong growth in our legacy operations".

Analysts at Citi and Deutsche Bank both took a look at theme park operator Merlin Entertainments, with both firms reiterating their 'buy' rating and target price of around 500p.

With Merlin's financials ending in line with expectations, £1,594m in revenue compared to £1,589 estimates, Deutsche Bank made no changes to the firm's estimates for its current trading year, but noted it foresaw the first hald of the year to "remain subdued" against tough competition as a result of weakened tourism and a weakened sterling post-Brexit.

Citi said, "The shares have rallied off lows following the announcement of activist investor ValueAct as a 5% shareholder. We don't expect any public commentary from either ValueAct or Management but it has helped to highlight the clear value in the shares which we think have been unfairly punished following last year's weak trading on the back of terrorist attacks. As management highlights this should not alter the longer term structural growth opportunity even if there is some short term displacement of travel flows."

Whereas Deutsche's outlook recognised that it may take some time to restore confidence in the firm's growth trajectory following its Q3 losses, with its analysts saying, "We like Merlin's longer term selffunded growth trajectory, diversification by product/geography and the range of global investment opportunities. The reallocation of capex should restore growth, likely visible in FY19E. Therefore we believe the equity story remains intact and the arrival of an activist shareholder should further flag the that the valuation is too low."

Deutsche issued Merlin with a target price of 515p, while Citi gave it a 500p target price.

As of 1700 GMT, shares had picked up 9.41% to 372p.