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High-yield ITV has the BreXit factor

The television broadcaster's shares undervalue its growth prospects and there's a big yield to boot
High-yield ITV has the BreXit factor

The uncertainty of the EU referendum has weighed on UK advertising demand, but the fire-sale of ITV's (ITV) shares looks excessive. The Britain's Got Talent broadcaster has delivered strong growth and reduced its reliance on unpredictable advertising revenues by investing in digital offerings and production. It has also made several shrewd acquisitions, while declines in sterling and its market capitalisation could entice a foreign buyout. Yet its shares trade at a measly nine times forecast earnings, and there's a forward yield of 5.5 per cent, not to mention management's penchant for special dividends. Investors should change channels to ITV before the market catches up.

IC TIP: Buy at 170p
Tip style
Income
Risk rating
Medium
Timescale
Medium Term
Bull points
  • Strong digital and production growth
  • Excessive Brexit-related markdown
  • Large yield and special dividends
  • Potential for a takeover
Bear points
  • Tepid advertising outlook
  • Pressure on studio profits

Brexit uncertainty and the fact that ITV earns just over two-fifths of its revenue from TV advertising has prompted skittish investors to slash the group's market value by over a third this year. They may have overlooked its recent diversification: production arm ITV Studios generated 37 per cent of total revenue in 2015, up from a quarter in 2011. Moreover, international sales ballooned from 37 to 53 per cent of the division's total over the same period.

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