Should You Buy ITV?


LONDON -- The shares of broadcaster ITV have steadily marched higher since the summer of 2012 and are currently up almost a quarter in the year to date against a 10% rise for the whole FTSE 100 index, just off a recent record peak of 132 pence.

The company has undergone extensive reshaping in recent years and last year delivered double-digit profit growth despite a subdued television advertising backdrop. Broker Liberum Capital has placed a 155 pence price target on the stock, suggesting the price still has further ground for gains.

Advertising revenues set to march higher
ITV's 2012 results released last month showed revenues rise 3% to 2.2 billion pounds, driving earnings before interest, taxes and amortization 13% higher to 520 million pounds.

The results were particularly encouraging, given the lack of growth in TV advertising, illustrating the strength of the firm's online and content divisions. But even here the environment looks ready to improve.

Liberum said it expects pay-TV and broadband advertising spending to become much more aggressive as we approach the summer.

With BT Group ready to launch its Premier League portfolio, prompting a scramble among competitors British Sky Broadcasting, Virgin Media, and Talk Talk, ITV should experience rising advertising revenues.

And with ITV continuing to build its share of the television advertising market -- 2012 levels stood at 45.8% versus 44.7% in 2009 -- and "real time" TV viewing rising over the period, the broadcaster's structural drivers continue to improve.

Elsewhere, ITV's extensive cost-cutting program is set to match last year's 20 million pounds of savings in 2013. And further savings can be expected further out as additional measures come to fruition, including the restructuring of its news operations.

The price is right
City analysts expect earnings per share to rise 11% in 2013, to 10 pence, before rising a further 7% next year to 11 pence.

ITV's shares currently change hands on P/E ratios of 12.9 and 12 for 2013 and 2014, respectively, below the wider media average of 13.6. I expect the P/E multiple to continue trending lower as earnings improve further out.

The broadcaster is also anticipated to continue building dividends, and analysts predict last year's 2.6 pence-per-share payout to rise to 3.9 pence in 2013 and to 4 pence per share in 2014.

These prospective payments are represented by yields of 3% and 3.1% for this year and next, below the FTSE 100 average, but they are safeguarded with coverage of about 2.6 times for both years. A reading above 2 is considered the benchmark for splendid protection.

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