ITV PLC shares offer big ‘upside risk’ ahead of World Cup in Qatar despite deteriorating advertising market
ITV PLC (LSE:ITV) is set to get a big and much-needed boost from the FIFA World Cup in Qatar, which starts a month from tomorrow, amid a deteriorating advertising market those last weeks.
UBS said it expects a 6-13% drop in net advertising revenue (NAR) for European broadcasters in the third quarter, including a 10% drop for the UK, based on industry feedback and its monthly survey of media buyers.
Broadcasters face a hardening of the previous comparison period and a deterioration in the advertising market, the investment bank said, with responses to the survey of media buyers suggesting a drop in expectations since the previous survey in february.
However, ITV presents “upside risk” from the World Cup and is one of UBS industry analysts’ “favorite games”, with a “buy” rating and a price target of 135p stock that offers more than 130% upside from the last closing price. .
At this price, it trades on five times the earnings of 2023, a low year, with a dividend yield of 8% based on the expected payment for 2022, suggesting “significant value”.
If its ITV Studios business can trade at 12 to 13 times projected 2023 earnings, then the Media & Entertainment (M&E) business “attributes virtually no value to current prices,” analyst Richard Eary said in a statement. note to customers.
Due to tougher comparisons and a deteriorating advertising market, UBS cut its EPS forecast for the sector by up to 6%, with ITV being one of the exceptions among ad-supported broadcasters as it owns the rights broadcast of the Qatar tournament.
UBS forecasts that ITV’s third-quarter revenue will have fallen 3% to £807m, with TV advertising revenue expected to drop 13% to £425m.
While the company had previously indicated that July and August TV NAR were expected to fall 9% and 18% respectively, the analyst said his estimate was lower than ITV’s implied guidance “following more bearish comments from buyers of media and industry representations implying that September trading was weaker than expected.”
Net income for ITV Studios is expected to rise 16% to £306m, below consensus forecast of £333m.
UBS’s valuation for the shares is based on a sum-of-the-parts method based on discounted cash flows using a weighted average cost of capital of 9.5% and terminal growth of 0% for the M&E activity.