Barclays downgrades ITV, shares slump

The company’s shares slid on Thursday after it said revenue rebounded from the Covid-19 crisis but investors were concerned about its spending plans. ITV said it would invest about £1.23bn in content in 2022 as part of a plan to double digital revenue to at least £750m by 2026.

It will also invest £20m in digital-first content in 2022 and £160m in 2023 for its ITVX integrated streaming platform which will launch in the fourth quarter.

Barclays said its upgrade of the shares at the end of January was based on short-term advertising momentum leading to upgrades, hope of better disclosure which should have helped the medium-term case, and valuation.

"Short-term advertising is indeed much better than consensus but the upgrades we hoped for have turned into a significant downgrade (30%+) because ITV has decided to double down on AVOD/SVOD and disclosure has not improved," the bank said.

"In our view, ITV is investing more than expected to end up where we thought they would be in 2026E. This might dramatically increase their chances of making it but this comes at a cost of declining earnings in FY22E and FY23E.

"In a market where investors are highly sceptical of broadcasters' prospects, we are not surprised by the stock price reaction which is more or less in line with the EPS downgrade."

Barclays said that with such scepticism, it reckons ITV needs to see EPS upgrades to have any chance of performing, "something that likely won't happen soon".

"Management is arguably doing the right thing, on demand is the future, but they should have done it in one go as much as possible as opposed to the three investment phases we have seen (but easier said than done)."

At 0920 GMT, the shares were down 8.2% at 73.64p.