ITV Plc

ITV PLC (ITV) is a London, United Kingdom-headquartered integrated producer broadcaster (IPB). The company creates, owns and distributes high-quality content on multiple platforms internationally, and owns 13 regional licenses and sells advertising on behalf of all 15 licenses, making it the largest family of commercial channels in the country. With 40 million viewers reached weekly through the company's programmes, the group through its channels reaches over 65% of the UK population each week. The company's operations are differentiated in two segments: Broadcast & Online and ITV Studios. Dame Carolyn McCall is the Chief Executive Officer of the group; she was appointed to the position in January 2018

Trading Update (Q1 FY 2019)
The group reported that total external revenue fell 4% in the first quarter to £743 million, while like-for-like revenue dropped 4% to £874 million. Total advertising revenue also decreased by 7% to £417 million, while non-advertising revenue was down by 1% to £457 million. The group informed that demand for advertising is getting impacted by the continued economic and political uncertainty, because of which the company expects total advertising to be down 6% over the first half.  

Key Financial Highlights (FY 2018, in £m)
 
(Source: Company Filings)

Total ITV’s revenue was up by 3% to £3,766 million, against £3,655 million in 2017, with a rise of 3% reported in external revenue at £3,211 million. Adjusted EBITA, driven by the closure of Encore and investment in the schedule for the World Cup, decreased by 4% to £810 million. The EBITA margin also declined by two percentage points to 25% as compared to the last year data. The statutory profit before tax reported a rise of 13% to £567 million. The diluted adjusted EPS dropped by 4% to 15.4p, though the weighted average diluted number of shares declined year-on-year. The statutory EPS grew by 15% to 11.7p, reflecting a decline in the reduction in exceptional items and net financing costs. Keeping in line with the Board's target to deliver at least 8 pence per share dividend per year in 2018 and 2019, the group announced a full year dividend of 8.0p, up by 3%, against the 7.8p announced in 2017.

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary

Daily Chart as at June-04-19, before the market closed (Source: Thomson Reuters)
 
On 4^th June 2019, at the time of writing (before the market closed, GMT 12:25 am), ITV shares were trading at GBX 108.92, up by 3.58 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 183.10/GBX 103.10. The company's stock beta was 1.13, reflecting higher volatility of the stock as compared to the benchmark index. Total outstanding market capitalisation was around £4.22 billion, with a dividend yield of 7.61%.

Conclusion
While the performance in the first half of the financial year is expected to be impacted by the ongoing political and economic uncertainties and its impact on the demand for advertising, over the year, the group expects to deliver good organic revenue growth in ITV Studios and double-digit growth in online revenue. This reflects a sustainable and cash generative business operated by the group, delivering continued value for shareholders.

The structural demands of the business are also changing, with a turn towards online content. Keeping up with this trend, the company has responded to it; evident from strong viewing performance reported by the company for 2018. The company also expects to launch BritBox in the second half of the year and it has made good progress in delivering its strategy.

Based on the healthy prospects and supported by valuation done using the above method, we have given a "BUY" recommendation at the closing price of GBX 105.15 (as on 3^rd June 2019) based on 9.14x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 

Experian Plc

Experian PLC (EXPN) is a Dublin, Ireland-headquartered world's leading global information services company, which gathers, analyse, combines and processes data to help consumers and companies to understand and transform data into something meaningful. The company’s operations comprise of two divisions: Business-to-Business and Consumer Services. Business-to-Business is further differentiated into Data and Decisioning. The company segregates its geographic operations into North America, Latin America, UK and Ireland, and EMEA/Asia Pacific. Brian Cassin is the Chief Executive Officer of the group.

Recent Development
On 29^th May 2019, the company announced that effective from the conclusion of the Company's AGM on 24 July 2019, Mike Rogers will succeed Don Robert as the Chairman of the Board. He had chaired the Remuneration Committee since July 2018, following his addition to the Experian Board in July 2017.

Key Financial Highlights (FY 2019, in $m)

(Source: Company Filings)

Reflecting strong growth across all regions and divisions, revenue increased at actual exchange rate by 6% to $4,861m (2018: $4,584m), with organic revenue growth of 9% from ongoing activities. Revenue in B2B was driven by good take-up rates for new sources of data and new product innovations, and in consumers, it was driven by the introduction of new offers and relationships with millions of consumers.

Operating profit for the year increased to $1,162m(2018: $1,051m), while benchmark EBIT grew by 5% at actual rate to $1,311m, reflecting a growth of 10% at constant exchange rate.

Driven by significant productivity gains across businesses, benchmark EBIT margin rose to 26.9%, surged by 20 basis points at constant currency. Due to currency translation effects, it reduced by 20 basis points at actual exchange rates.

Profit before tax grew to $957m(2018: $950m), while profit after tax for the financial year 2019 stood at $701m. Benchmark EPS was 98 cents, reflecting growth of 4% at actual exchange rate and 9% at constant exchange rate, while basic EPS was 76.9 cents (2018: 85.4 cents).

Valuation Methodology
Method:  Price/Cash Flow Approach (NTM)
 

Share Price Commentary

Daily Chart as at June-04-19, before the market closed (Source: Thomson Reuters)
 
On 4^th June 2019, at the time of writing (before the market closed, GMT 12:30 am), EXPN shares were trading at GBX 2,367, down by 1.41 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 2,409/GBX 1,710. The company's stock beta was 1.07, reflecting roughly the same volatility as compared to the benchmark index. Total outstanding market capitalisation was £21.79 billion, with a dividend yield of 1.51%.

Conclusion
The US, Brazilian and UK markets are significant contributors to the company’s revenue and a substantial change in the credit markets of these markets could reduce its financial performance and growth potential. The company might suffer increased costs or decreased revenue resulting from modified business practices, adopting new procedures or regulatory actions resulting in liability or fines, as future regulatory changes could affect how the company collects and use consumer information for marketing, risk management and fraud detection.

Based on the headwinds faced by the company and supported by valuation done using the above method, we have given a "WATCH" recommendation at the closing price of GBX 2,401 (as on 3^rd June 2019) based on 17.57x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.), while any correction with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The buy recommendation is valid for the current price as covered in the report (as on June-04-19).

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