HSBC upgrades ITV on prospects of strong year

HSBC has upgraded ITV from ‘hold’ to ‘buy’ and increased its target price from 275p to 305p on prospects of what it thinks will be another strong year.

In a note on the European media sector issued on Monday, the investment bank said it isn’t worried about a “perceived structural weakness” when it comes to issues like audience numbers.

HSBC was also optimistic about the media company’s ad revenue for 2016.

“Media buyers are highly optimistic about 2016 compared to Street estimates (we now assume 5% NAR growth vs consensus closer at 3-4%) mainly driven by strong price increases.”

Holding broadcast rights to the UEFA EURO 2016 and Six Nations Rugby are also expected to help ITV.

It also believed programming expenses wouldn’t increase dramatically, excluding expenses once the acquisition of UTV is completed.

“Following the GBP1.04bn guidance for 2015, we are modelling only a very modest increase in 2016 of GBP1.05bn (ex-UTV scheduling costs) despite the UEFA EURO 2016,” HSBC said.

“We think the market is overly concerned that weak audiences need to be fought with a step-up in programming cost while we believe the bigger issue remains the content, not the amount of money spent.”

The note also signalled investors might be in line for some returns.

“ITV’s financial headroom remains sizable with deals greater than £1bn digestible as the focus will likely remain on consolidating the content production sector.

“Absent any bigger M&A deals in 2016, we would be surprised not to see sizable extra-shareholder returns (dividends) in 2016.”

Shares in ITV were up marginally at 0900 GMT to 260.1p, rising 0.7p (0.27%).