Credit Suisse lowers ITV target price but retains 'outperform' recommendation

The uncertainty surrounding the Brexit referendum will drag on ITV's advertising revenues, but investors would be wrong to try and put a 'structural' spin on what is in fact a 'cyclical' slowdown, Credit Suisse said.

Indeed, in its first quarter update, ahead of the Annual General Meeting on Thursday, management had guided for revenues to come in 6% ahead of consensus, with the broker labelling expected growth at the outfit's studios arm as "very strong".

In the words of analysts Sophie Bell and Joseph Barnet Lamb, the outlook for the second quarter was "muted", with management anticipating flat net advertising revenues against consensus expectations for an increase of between 1% and 2%, driven by the uncertainty surrounding the referendum.

As well, buyers had lowered their own forecasts for growth from 2.9% to 1.6%, according to Credit Suisse's last survey.

For those reasons, Bell lowered his own forecast for NAR growth from 2.9% to 1.2%.

However, "while buyers' expectations are generally accurate, [we] believe there is a decline in their reliability when forecasting one-off "shocks" to the ad market (i.e. EU referendum, UK general election, FIFA World Cup)," Bell said in a research note sent to clients.

Also in the company's favour, its audience share continued growing over the first 17 weeks.

Trading at 9.6 times enterprise value-to-earnings before interest, taxes, depreciation and amortisation and a price-to-earnings multiple of 12.6 the stock was changing hands at a discount of 15% and 35% versus its EU media ex-internet peer group, the Swiss broker noted.

"We believe concerns around ITV are cyclical and attempts to attach a structural rationale are misplaced. ITV's attractive content business and potential for future cash returns (CSe 16E leverage, 0.5x) creates an attractive long-term investment case, in our view," Bell concluded, keeping his 'outperform' recommendation intact although the target price was lowered from 270p to 255p.