ITV hit as Goldman Sachs trims advertising growth forecasts

Goldman Sachs trimmed its share price targets for ITV and other European media operators as it cut it forecasts for industry advertising revenue for the second quarter but spied a rebound ahead.

A 'buy' rating was maintained on ITV's shares -- which are also liked for their M&A potential -- but the target price was shaved almost 4% to 228p, from 237p, which from the opening price of 177.5p on Friday, still offers plenty of upside.

But with the free-to-air broadcast sub-sector down 8% over the last month and 12% over three months, Goldman said this suggested the market does not expect a cyclical recovery in the second half of the year.

But the bank restated its belief that broader ad weakness "is temporary, rather than structural", seeing the second quarter as the low point for advertising as comparative figures from last year are the toughest in this quarter "and will ease by 280 basis points" in the second half.

TV and agencies are more exposed to large spenders such as FMCG companies which face top-line pressure and tend to try and protect their bottom lines by reducing ad and promo spending when input costs rise, with 2017 the first year of increase since 2011.

"Uncertainty creates more volatility and less appetite to commit upfront," wrote Analyst Lisa Yang, "with our discussions with industry participants suggesting ad budgets will be more back-end loaded this year."

She added: "With ad weakness already well flagged, the key focus from the results will be the ad outlook and early indications on September."

In the UK, while the full-year consensus for a 6% decline net advertising revenue "looks reasonable", she believes the market will increasingly focus on 2018, where consensus is for a 1.2% rise in NAR.

ITV is seen enduring a 8.6% fall in ad revenue in the first half of this year and down 3.4% in the second half for a full year decline of 5%.

For the wider European sector, Yang trimmed Q2 NAR by 100 basis points to -1.3% after +2.2% in 1Q and full year NAR by 50 points to +1.1%, implying a recovery to +2.0% in 2H on 280-point easier comparatives.