ITV profits down 60% due to advertising slump

There is a lot not to like in ITV’s (ITV) full-year results. A weak advertising market, combined with huge investment in streaming, caused the group’s adjusted Ebita to tumble by 32 per cent to £489mn. Linear ads were the main issue, declining by 15 per cent year on year. 

Beneath the surface, however, there are some encouraging signs. ITV Studios had a “record” year, with revenue climbing by 4 per cent to £2.2bn and adjusted earnings jumping by 10 per cent to £286mn. Mr Bates vs The Post Office was the most-viewed drama on its platform for five years.

Cost savings are also ahead of schedule. Management was originally targeting £150mn of savings between 2019 and 2026, but it has delivered £130mn already and is on track to deliver the full £150mn by 2025. Analysts at UBS said this implied a 5 per cent upgrade to consensus cash profit forecasts for 2024. 

Earlier this month, ITV also announced that it had sold off its entire stake in BritBox International for net proceeds of £235mn. This money will be returned to shareholders via a share buyback, which is expected to start today. 

The outlook for 2024 is uncertain. Total advertising sales are expected to edge up by 3 per cent in the first quarter, driven by digital ads. However, the production arm will be impacted by last year's Hollywood strikes. Around £80mn of production revenue will be delayed from 2024 to 2025, and European free-to-air broadcasters are also tightening their belts.

We are still convinced of the inherent value of the studios division, however, and think the group’s lowly forward price/earnings ratio of 7.2 fails to reflect its worth. It is just a case of unlocking the value. Buy

Last IC View: Buy, 72p, 27 Jul 2023