- Strengthening ad budgets in the run-up to Xmas
- The impact of inflationary pressures difficult to predict
The share price of ITV (ITV) surged in response to the release of a wholly upbeat third-quarter (Q3) trading update as the broadcaster accelerates the second phase of its digital transformation.
The group saw total advertising revenues for the first nine months increase by 30 per cent year on year to £1.3bn, as businesses boosted their marketing expenses to take advantage of the general recovery in aggregate demand in the economy.
Management confirmed that the group was trading in advance of pre-pandemic levels and it now expects that advertising on its streaming service, ITV Hub, will hit a record through the year despite the earlier lockdown in 2021. Meanwhile, revenues at ITV Studios, the broadcaster’s production segment, were up by a third to £1.2bn.
Expectations are high in the run-up to Christmas, as the last quarter normally accounts for around a third of annual advertising sales. The group anticipates that the total advertising spend through the fourth quarter will be up between 11 and 13 per cent against strong comparatives in 2020.
The main channel’s share of viewing at Q3 was up by 40 basis points to 17 per cent, with encouraging metrics across key demographics, as one-off events such as the Euro 2020 tournament drew in viewers. Online viewing was up 39 per cent through the period. Total ITV viewing pulled back by 5 per cent, although it needs to be remembered that people were glued to their TVs and other streaming devices through the initial lockdowns brought about by the virus.
ITV is another company that has benefited from the bounce back from the disruption brought about by Covid-19, although there are certainly signs that its digital strategy has placed the group in a better position to take advantage of the consumer rebound. And whispers persist that it could table an offer for rival broadcaster Channel 4 if the government decides to go down the privatisation route – we shall see.
Shareholders will be encouraged by the prospect of a marked increase in advertising revenues through the remainder of the year, although we will get a better idea of how well the digital strategy is playing out when a degree of normality returns to the economy. And we can’t be sure how the fast-rising cost of transportation and raw materials will impact advertising budgets going forward. Hold at 123p.
Last IC view: Hold, 117p, 28 Jul 2021
