Newspaper share tips: ITV sale rumours not worth much

FT's Lex column looked to television on Tuesday, amid the circulating rumours that oft-maligned US media giant Comcast was sniffing for a deal for ITV.

It pointed to the fact shares in the FTSE 100 media company have beaten the MSCI European Media index by 24 percentage points, explaining the broadcaster's stellar stockmarket performance as being fuelled by regular takeover rumours.

But it did also highlight ITV's successful six-year turnaround, describing its 2009 financial year as an "earnings nadir".

"Net earnings this year are expected to be just shy of £650ml in 2009 they were £91m. This despite the fact that ITV's share of viewers has declined steadily since 2012."

Lex said there was a weakness in the ITV plan going forward, however. The commercial broadcaster was seeking so-called retransmission fees from the big cable and satellite broadcasters - Sky and Virgin Media - which could add £150m per year to its operating earnings.

However, the question of retransmission fees was considered by industry experts to be quite the can of worms, as the BBC might also wish to pursue such fees, which would in turn reopen the debate over how the Beeb is funded.

"Ofcom, the regulator, has hinted it is not keen to pursue the retransmission fee issue. So ITV might not get that £150m any time soon."

Lex said ITV's consistently rising share price was not sustainable for a cyclical business such as television, and suggested the record profits might be reaching a peak, particularly if the retransmission fees are not forthcoming.

"This (the rumoured Comcast takeover) looks awfully optimistic. Shareholders should not count on a buyout", the column concluded.

Over at the Telegraph, Questor editor John Ficenec rounded off the year on Monday by "embarking on the somewhat painful process" of reviewing the column's worst tips of 2015.

Up first was Peppa Pig producer Entertainment One. Questor compared the firm's investment case to that of a big blockbuster film, which rely on more marketing buzz than substance.

"We recommended Entertainment One at 311p at the start of the year, and we ignored the warnings as the shared plunged by 45pc to close at 170p at the end of last week," Ficenec said.

That said, the column did say there was some value in the firm's back catalogue, which included popular television shows as The Walking Dead and Gray's Anatomy. It also said the new joint venture with Steven Spielberg - Amblin Partners - could work out, though "the debt pile could mean equity investors see little of that reach them. Sell."

Questor also discounted its own advice when it came to discounter Poundland, which saw profits tumble in 2015 along with expansion plans delayed by a competition commission review.

"The lesson here is to be careful about overpaying for the promise of growth", Ficenec quipped. "When we tipped the shares at 300p in June, they were trading on 20 times forecast earnings and that is a high price to pay for a low profit margin retail group."

The column pointed to the expensive takeover of rival 99p stores and flagging sales heading into Christmas as a bit of a warning signal.

"We cut our losses of 26pc and downgraded to a sell last month at 223p, and we'll think twice about overpaying for growth in the future."