ITV PLC

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

Investment Rationale for Valuation – Buy at GBX 67.91 

• Expansion in International Content Business: On 14 June 2022, ITV announced the acquisition of a majority interest of 79.5% in Plimsoll Productions for a cash consideration of approximately £103.5 million. The transaction will be earnings accretive from day one and enhance ITV Studios' growth worldwide.
• Cost Saving Target: ITV remained well positioned to achieve previously announced £17 million cost saving target for 2022.
• Strong Digital Revenue Guidance: The delivery of ITVX and a strong demand for Planet V will enable ITV to deliver at least £750 million of digital revenues by 2026.
• Technical Indicator: ITV's prices again tested the crucial support level of GBX 67.00, indicating the possibility of an upside direction hereon. The leading indicator RSI (14-period) is hovering around an oversold zone, supporting an upside reversal. 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

• Weak UK GDP Numbers: According to the Office for National Statistics, the UK GDP grew only 0.2% for the three months through April 2022 after 0.8% in the previous three-month period.
• Tightening of Monetary Policy: The red-hot inflation data released on 10 June 2022 had raised fears of aggressive Federal Reserve monetary tightening. Moreover, the Bank of England meeting scheduled for 16 June 2022 may continue the cycle of rate hikes. Thus, it may adversely impact the UK equities.

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.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative) 

Conclusion

The Company has a strong balance sheet and an adequate free cash flow generation to fund investments to deliver its digital acceleration and returns to shareholders.

The stock made a 52-week high and low of GBX 134.15 and GBX 66.38, respectively.

Based on the solid FY21 results, expansion in international markets, strong guidance for digital revenues, and support from the valuation as done using the above method, we have given a “Buy” recommendation on ITV PLC at the current market price of GBX 67.91 (as of 14 June 2022 at 08:01 AM GMT+1) with lower double-digit upside potential based on 6.00x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Please note 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 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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