ITV confident of first half growth despite advertising slump

Although NAR from the ITV 'family' of channels was down very slightly in the first quarter after a 13% decline in April, strong growth from ITV Studios programming meant total group revenue rose 14% to £755m in the three months to 31 March.

The FTSE 100 company forecasts NAR will be flat for May and up around 15% in June, which will flatten off April's decline.

Non-advertising revenue was up 34% to £428m, accelerating from the 25% growth in 2015, fuelled by a 44% first-quarter gain at ITV Studios and 17% from the Online, pay & Interactive segment.

"ITV is now a much stronger and more diverse business and we expect to deliver good profit growth in H1," said chief executive Adam Crozier.

"This is against the backdrop of uncertainty in the UK advertising market, which we have experienced since the debate over Brexit began, and significantly higher share of our programme spend in the first six months. We anticipate ITV Family NAR in H1 to be broadly flat and ahead of the market."

ITV Studios was helped by acquisitions such as 'The Voice' and 'Dating in the Dark' producer Talpa Media coming through and the division has a good pipeline of new and returning programmes, including Victoria, Cold Feet, The Voice and Alone, which Crozier said "gives us confidence for the full year and into 2017".

"The traditional UK television market is robust with overall viewing and impact volumes up," he added.

Indeed, the broadcast business saw the main ITV channel's share of viewing up 3% in the first four months of the year, the ITV Family share of viewing up 1% and online viewing consumption grew by 22% year on year.

Analyst opinions

Broker Numis said it believed the flow of advertising was hit by Brexit uncertainty and, though it was encouraged that June is strong, lowered full year NAR forecast from +4% to +1% on assumption of a modest bounceback in the second half when Brexit uncertainty dissolves.

"[We] stress that with a far greater base of profitability and transformed balance sheet, ITV is much better placed to weather a downturn than in 2008."

But while the uncertainty surrounding the referendum will drag on ITV's advertising revenues, investors would be wrong to try and put a 'structural' spin on what is in fact a 'cyclical' slowdown, Credit Suisse argued, adding that ad buyers' are less reliability when forecasting one-off 'shocks'.

"We believe concerns around ITV are cyclical and attempts to attach a structural rationale are misplaced. ITV's attractive content business and potential for future cash returns creates an attractive long-term investment case, in our view," CS analysts said.

Richard Hunter of Wilson King said the update dispelled some of the recent concerns surrounding the company’s prospects.

"Notwithstanding the likely short-term fillip of the European Championships, ITV is continuing to lessen its reliance on advertising revenue, as revenues from Studios and Online again comfortably outpaced growth from the traditional broadcast area."

He also highlighted the attraction comes of the dividend, where a yield of 4.6% "is particularly appealing to income seeking investors in the current environment".

Steve Clayton at Hargreaves Lansdown said ITV's better use of cash would be to keep funding the acquisition of new production houses, giving it more content to use at home, and to sell abroad.

"Earnings are enhanced by these deals compared to holding cash, and they also make ITV less dependent on terrestrial advertising revenues, though these are still an important source of income for the group.

"If ITV can find the right deals, at sensible prices, then it could grow even faster than the market consensus currently predicts."

Shares in ITV jumped initially on Thursday before continuing their 2016 march downwards, falling more than 1% to level around 212p that had not been seen since late 2014.