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ITV takes a hit after its latest update

Article By: ,  Financial Analyst
May 14, 2014 5:52 PM

The market was unimpressed with ITV’s numbers today (14th May) – the company’s shares dropped around 6% (at time of writing) following its trading update.

For the three months ended 31st March, the free-to-air broadcaster took revenue of £585m, up 2% over the same period last year.

By segment, the company’s broadcast and online business grew revenue by 3% in the period at £480m, partly helped by a 2% growth in net advertising revenue (NAR).

On the other hand, revenue at the company’s studios division (its content production arm) came in at £192m, a 4% decline from last year, due to ‘phasing of programme deliveries’.

Additionally, the company’s share of viewing dropped by 8% in the first four months of the year, but, it has high hopes in its upcoming schedule, including the FIFA World Cup in June. 

Looking ahead, ITV expects to outperform the advertising market in the first half and over the full year.

ITV’s update wasn’t entirely dismal but with expectations so high, it was easy to disappoint.

Indeed, the company has certainly made good progress towards emerging from the difficulties it faced a few years ago, and hopes abound for sustained momentum.

ITV’s efforts to turn things around have been highlighted here, previously. That included cutting costs to improve margins, boosting its online efforts; as well decreasing its dependency on advertising revenue via pay-TV initiatives and content production. Those have been moving along nicely.

For fiscal 2013, its online, pay and interactive revenue grew 16% over the previous year. Admittedly, it’s still a small fraction of overall revenue, but the rate of growth looks encouraging (it grew 14% in the first three months to March of this year).

Meanwhile, its content production business has been gaining notable traction, helped by a series of acquisitions over the last few years – ITV’s purchase earlier this month of an 80% stake in US-based Leftfield Entertainment for $360m should add to that trend. By the way, ITV still retains decent financial flexibility.

All of this positions the company well for growth and the return to health in advertising spending doesn’t hurt the company’s outlook either.

So, it’s no surprise that expectations surrounding ITV have been high and its latest update does offer reason for disappointment.  But today’s market reaction looks a tad dramatic, without short-term goggles on, that is.

 

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