ITV PLC

ITV PLC (LON: ITV) is an FTSE 100 listed British Media Company. It operates through two business segments - Broadcast & Online and ITV Studios.

Rationale for Valuation – Buy at GBX 69.60

• ITVX in Progress: The Company’s free, ad-funded streaming service, ITVX is on track for launch in Q4 FY22, which has the potential to deliver at least £750 million of digital revenue by 2026.
• Strong Fundamentals: During FY21, ITV delivered a 24% and 48% YoY growth in group external revenue and profit before tax. It continued robust financial and operational performance in Q1 FY22 as well with decent growth prospects.
• Undervalued Multiples: On a forward 12-month basis – EV/EBITDA, EV/Sales, Price/Cash Flow, Price/Book, and Price/Earnings valuation multiples are undervalued against the of the Media & Publishing industry.
• Technical Indicators: ITV's prices recently tested a crucial support level of GBX 67.00 and started to move upward, indicating the possibility of an upside direction. The leading indicator RSI (14-period) is recovering from an oversold zone and also formed a positive divergence with the price action, further supporting the positive bias. However, prices are trading below the trend-following indicators 21-period SMA and 50-period SMA and may as the resistance levels for the stock.

Key Risks

• Macroeconomic Uncertainties: The resurgence in Covid-19 cases and fresh restrictions in China, the US dollar hitting two-decade peaks, persistent inflation, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.
• Emerging Risk: Failure to respond to rapidly changing viewer habits and evolving demand in content market can lead to a loss in business.

Q1 FY22 Trading Update (for the 3-month period to 31 March 2022, as of 11 May 2022)

 (Source: Company Filings)

• Solid Top-line Growth: During Q1 FY22, ITV demonstrated strong operational and financial performance with a year-on-year 16% increase in total advertising revenue, 24% increase in digital revenues, and 23% revenue growth in ITV Studios.
• Strong Outlook: ITV is leveraging well on the strong global demand for content, and progressed well on achieving £17 million cost saving target for FY22.

Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: STV Group PLC, WPP PLC, and Impresa Sociedade Gestora de Participacoes Sociais SA.

*All selected peers are LSE-listed Companies from the Media sector.

Conclusion

Based on the solid demand for content, decent fundamentals, bright outlook prospects, and support from the valuation as done using the above method, we have given a “Buy” recommendation on ITV PLC at the closing market price of GBX 69.60 (as of 13 May 2022) with lower double-digit upside potential based on 6.02x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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