ITV rated 'sell' as UBS begins broadcasting coverage

In a note issued on Thursday, the investment bank noted there are a number of structural pressures building.

“Linear TV audience fragmentation, not seen in past cycles and led by millennials, is accelerating (particularly in the UK); cost inflation (sector opex is at or below 2007 levels) is returning; cost-out options exist but are now selective; ratings are under pressure… and a ratings recovery – if not delivered via improving content ROI – may also require additional investment.”

It said ITV is one of its least preferred stocks in the sector after ranking the sector against a number of factors including the a diversification strategy and capital management levers.

UBS also said the sector's valuation does not look overly compelling.

“On FY16E PE of 16x, a 23% premium to US entertainment peers, despite offering only about half as much FY16-19E EPS CAGR, at 6.7%.”

“On the other hand, conservative balance sheets… imply potential capital management upside.”

It cited ITV’s increased dividend payouts and special dividends as a positive.

Shares in ITV had dipped slightly by 1045 GMT to 252.30, down 1.9p (0.75%).