Markets responded negatively to ITV’s results today which revealed that pre-tax profits fell 10% to £500m, largely due to a slide in advertising revenue by 5% to £1.6bn.
The company blamed “ongoing economic and political uncertainty in the UK” and said it took action early to reduce overhead costs but the uncertainty still had an impact on the demand for television advertising.
However, Helal Miah, investment research analyst at The Share Centre, explained that this has been an issue for a few years now, “primarily as viewers transition online where big tech companies hold the power”.
He said: “The current Brexit environment will continue to create uncertainties in advertising and this morning’s negative reaction leads us to place our recommendation on the stock under review.
“However, it is an interesting period in the industry with dramatic changes going on with major names vying for expansion and dominance.
“The potential takeover of Sky is an example of this and with ITV being a relatively small company in market cap terms, it would not take much for a larger organisation to fully acquire the group.”
Despite this, the TV broadcaster, which Woodford added to his income focus fund in October last year, saw full year group revenues grow by 2% to £3.1bn, driven by good continuous performance of the ITV Studios business which generated a 13% increase in revenues.
The network’s share of viewership also grew by 2%, with online viewing up 29%.
Miah said that although there has been a fall in overall profits, investors need to take away positives.
“Moreover, there is a strong pipeline of new and returning programmes to the schedule in 2018 and advertising spend is set to increase in the run up to this year’s football world cup finals,” he added.
“Total scheduling costs should reduce during 2018 but increase again in 2019 due to higher spending on drama and sport rights.”
The TV broadcaster said it expects to see to see a positive first half of 2018, with Q1 up 1% and growth in Q2 around the summer’s World Cup.
Carolyn McCall, ITV chief executive, said: “There is no doubt that ITV’s operational performance in 2017 in a challenging environment was strong. ITV delivered a great viewing performance on-screen and online and double-digit revenue growth in video on demand advertising and ITV Studios. This gives us a solid foundation to build on for the next phase of ITV’s development.
“We are very focused on our strategic refresh. This will enable us to define a clear strategy and priorities that will highlight the opportunities and address the challenges that we face in an increasingly competitive media landscape. This project is well underway.”
McCall also confirmed that ITV Studios is seeing increasing demand, particularly in the UK and US, and has more than 60% of this year’s expected revenue already booked.
