ITV 'cheap' and advertising outlook not so gloomy, says Morgan Stanley

ITV shares look cheap compared to those of sector peers, said Morgan Stanley as it predicted a better advertising outlook than recent data had suggested.

Along with its full year results, ITV said it was seeing flat advertising in the first quarter and that April was weak at minus-5%.

Monitoring feedback from the ad industry since the results, Morgan Stanley said media buyers saw ITV spot net advertising revenue (NAR) rising roughly 2% in the first quarter and were surprised at ITV’s negative NAR figure for April.

Media buyers remained confident on 3.5%-4% NAR growth for the year, with some signs of numbers being edged up to over 4% on expectations of a strong May-July and a firm H2.

"Media buyers report that advertisers are considering Brexit in the context of consumer confidence but no impact on the ad market is being felt."

Morgan Stanley analysts themselves forecast just 2.5% NAR growth for ITV in 2016, despite the hunch that ITV management are confident of 3-4% growth as well.

At the results, chief executive Adam Crozier stated that the FTSE 100 broadcaster had good visibility across the year and that it saw no underlying change to ad industry views on likely TV ad growth from the start of the year.

With ITV shares ending last week just above 234p, they are trading for just under 10 times 2016 EBITDA and at a price-earnings ratio of 13 times, with 9% earnings per share growth forecast through to 2018.

Germany's ProSieben delivers 12% EPS growth in the same period but is on a p/e of 18 times, while RTL is pencilled in for 4% EPS growth and is on 15 times.

The analysts reiterated their 'overweight' rating and set a 300p target price.