ITV share price: what to expect from 2018 results

ITV is aiming to shrug off concerns over the threats from streaming services and declining TV audiences by delivering its new strategy. We explain what to watch out for ahead of the annual results.

When is ITV’s earnings date?

ITV will report its 2018 annual results on Wednesday 27 February at 7.00am (London time).

ITV results preview: What does the City expect?

It is a challenging time for ITV and other broadcasters. People are gradually spending less time watching traditional television in favour for online platforms such as Netflix, Amazon and Google’s YouTube, all of which have poached advertising dollars.

This prompted chief executive Carolyn McCall to initiate a new strategy in the middle of 2018 after taking over the reins earlier in the year. Marketed as a ‘refresh not a reboot’, the strategy aims to make ITV ‘more than TV’.

This involves maintaining its share of the traditional TV market to keep advertising revenue stable at a time when the wider industry is suffering declines, and fuelling growth through producing content, its ‘Direct-to-Consumer’ business that operates competitions and live events, and online streaming through its existing ITV Hub app and a potential new service that could be launched with other British broadcasters like the BBC and Channel 4.

ITV’s revenue rose 6% in the first nine months of 2018 as all parts of the business reported growth, but the broadcaster warned it anticipated a soft end to the year which could throw cold water over its annual results. ITV said total ad revenue was expected to fall 3% year-on-year (YoY) in quarter four (Q4), causing the figure for the full-year to come in flat.

Many have put it down to Brexit prompting advertisers to delay new advertising campaigns because industry still has no clarity on what sort of access they will have to the UK market after 29 March, nor how attractive the country will be after it leaves the EU.

Analysts expect revenue and operating profit to improve in 2018 but anticipate a 6.6% decline in adjusted net income, according to a Bloomberg-compiled consensus.

ITV 2018 annual results expectations

(£, millions) 2017 2018 consensus
Revenue 3132 3210
EBITDA 810 823.6
Operating income 555 799.4
Adjusted net income 646 603.2
GAAP EPS 0.102 0.109
Adjusted EPS 0.16 0.15

Q4 performance and FY guidance

ITV has warned advertising revenue will be lower YoY in the final three months of 2018, offsetting the growth seen earlier in the year to cause annual ad revenue to come in broadly flat. The performance in the final furlong of the year will be regarded by investors as a signal as to what early 2019 could hold. ITV’s share price is likely to be sensitive to any over-or-underperformance in Q4. Other guidance figures for its full year figures in 2018 include an initial investment in its new strategy of £15-£20 million and total schedule costs of between £1.055 to £1.060 billion.

Capital expenditure should be around £100 million, comprised £60 million of regular capex and £40 million on the redevelopment of its former London headquarters (it planned to move back in once refurbished, but has since decided to sell it). With a growing US footprint, forex is forecast to hit revenue by £20 million in 2018, but have no impact on profit.

Exceptional costs and pension

ITV has said it expects to book £85 million in exceptional costs in 2018, primarily down to the London redevelopment. It has said its contribution to its pension deficit will be consistent with prior years at £80 million in 2018, edging down to £75 million in 2019.

Change in longer-term strategy and guidance

The £15-£20 million investment made in 2018 into its new strategy will form the first portion of funding toward an overall investment of £60 million. However, ITV intends to offset this by delivering £35-£40 million of cost savings over the three years to 2021, meaning the overall net cost of the programme will be between £20-£25 million. The prospects are back-loaded: the rest of the investment (£40 million) will be made in 2019 but only a small proportion of the cost-savings (£15 million) will be delivered this year, with the rest following in 2020 and 2021. In addition, ITV has said it expects to book additional exceptional costs of £15-£20 million in 2019 as a result of its new strategy.

Other 2019 targets previously set by ITV include delivering double-digit annual online revenue growth over the three years to 2021 while increasing direct advertising revenue by a Compound Annual Growth Rate (CAGR) of at least 5%. It also wants to grow annual revenue from its Direct-to-Consumer business to over £100 million over the next three years. ITV has also fixed its total schedule costs at £1.1 billion during the 2019-2021 period.

Dividend

ITV has pledged to pay a dividend of 'at least' 8p per share during the period of investment in 2018 and 2019, with a view of growing the dividend in line with earnings over the medium-term. Its target to deliver a profit-to-cash conversion rate of 85% will be a key metric to watch to gauge its ability to grow dividend pay-outs going forward.

ITV Studios

The unit – which produces content for ITV and third-parties – is expected to deliver organic revenue growth of 3% in 2018, slightly lower than originally expected because of the absence of some programming versus 2017 and the delay of others into this year. ITV Studios is aiming to grow overall revenue at a CAGR of 5% over the next three years at an earnings before interest, tax and amortisation (EBITA) margin of between 14%-16%, and increase production to over 10,000 hours of programming.

Streaming

With online platforms stealing audiences from traditional broadcasters, streaming is a hot topic for ITV right now. It is trying to grow registered users of its existing ITV Hub app (which is free but users can upgrade for an ad-free service or to watch content outside of the UK) to 30 million by 2021.

ITV is, however, also exploring the possibility of launching a new streaming service with other British broadcasters. The director-general of the BBC, Tony Hall, recently said he had held 'constructive discussions' with ITV about a venture, with many believing others like Channel 4 could also contribute. The BBC and ITV already have a potential launchpad with their existing joint venture BritBox, which offers British content from both firms to fans in the US.

ITV share price analysis

ITV shares hit 122.85p on 28 December, their lowest for almost six years. The broadcaster has bounced back since, recovering 5.8%, but ITV shares are still down 23% over the last year (as at the open of trade on 20 February). That represents a significant underperformance against the wider sector, with the FTSE 350 Media Index having risen 6.5% over the last 12 months.

ITV share price: technical analysis

Looking at ITV from a technical perspective, the have started to see the bulls come back in at a particularly interesting area of support. The 124p level represents the lows of 2016, below which we could see a substantial move lower in a continuation of this three-year downtrend. However, until we see that 124p level taken out, this could be an important turning point for the company. Looking at the price action since rebounding from 124p, we have seen the price respect a descending trendline, dating back to early 2017. As such, while the price remains above 124p, there is a chance we could rebound from this confluence of support.

Looking at the stochastic oscillator, we are clearly in consolidation mode, with a break through 38 providing a bullish breakout signal. A rally through the 2019 peak of 141p would add to that bullish sentiment. However, while we have a wider bullish wedge in play, such a rebound could take the form of a retracement of the selloff from 180p unless we manage to break through that July 2018 peak. For now, keep an eye out for whether or not we see the market hold up at that 124p level, with the outlook dictated by the zone of support below.

How to trade ITV’s annual results

A Thomson Reuters poll of 20 analysts shows there is a long-term buy rating (as of 20 February), but only by a slim margin with a significant number believing the broadcaster to be adequately priced.

The view on ITV is not as bullish as it was three months ago, with more analysts downgrading the company to hold or sell during the period. Bank of America Merrill Lynch was the latest to do so, having downgraded ITV to sell last month.

ITV shares: broker recommendations

Recommendation Number of brokers
Strong buy 4
Buy 5
Hold 8
Sell 3
Strong sell 0
Average recommendation Buy

ITV earnings: will audiences and investors stay tuned?

ITV decided to use its strong performance in the first half to initiate a new strategy to tackle the challenges facing traditional broadcasters, taking a proactive approach that aims to ensure ITV is not left behind as people gradually turn off their TVs in favour of online services like Netflix and Amazon Prime.

In addition, Brexit has reduced the amount of marketing dollars on offer as businesses hold off investing in new campaigns before knowing what the future holds beyond 29 March. ITV has warned ad revenue will deteriorate in the Q4 of 2018 but many are worried it won’t be temporary and is, in fact, a sign of things to come for the UK market in 2019 as the chances of a no-deal Brexit remain higher than ever. ITV’s biggest challenge will be convincing investors it is addressing the huge changes sweeping the industry and picked the right strategy. Ultimately, it looks like things could get worse before they get better and that means investors need to decide on their view on ITV shares over both the short and long term. ITV has vowed to protect the dividend in the meantime, which should help keep investors content whilst it invests the sums needed to refresh – not reboot – the business.

The long-term broker recommendation on ITV remains at buy, but only by a slim majority following several downgrades over the past three months.

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