ITV shares slump set to kick broadcaster off FTSE 100 index

• ITV shares struggle as ad revenues collapse amid Covid-19
• The British broadcaster faces relegation from the FTSE 100
• Advertisers show signs of returning as lockdown measures ease

ITV shares have plummeted amid the coronavirus pandemic, with the maker of shows like Emmerdale and Coronation Street to be relegated from the FTSE 100 index.

The British broadcaster’s share price did attempt to mount a recovery after the initial shock of Covid-19 sent global stocks into freefall in March.

But the rebound was short-lived, with the stock on course to return and potentially fall below its year-low of 54p per share if headwinds persist.

ITV is trading at 60p per share at the time of publication, with the stock down

ITV to drop out of FTSE 100, B&M set to take its place

ITV has been a member of the FTSE 100 since 2011, but the British broadcaster is facing relegation from the index after the shake-out on 1 September due to its terrible performance in 2020.

Traditional broadcasters have struggled due to increased competition from online streaming services like Netflix, Disney+ and Hulu, with the coronavirus pandemic exacerbating the challenges ITV faces.

‘The Covid-19 pandemic limits ITV's ability to create and show new content and thus attract advertising, although the longer-term trend of competition from streaming services and rival broadcast technologies is a huge factor as well. This year's first-half figures made for grim reading,’ Russ Mould, investment director at AJ Bell, said.

B&M European Value Retail is set to take ITV’s place on the FTSE 100.

ITV earnings halved by falling ad revenues

The British broadcaster unveiled its half-year (H1) earnings earlier this month, which showed that the company’s profit was almost entirely wiped out by the economic impact of Covid-19.

The pandemic has caused advertising revenue to fall by 21% to £671 million, with retailers looking to cut costs and strengthen balance sheets amid government-imposed lockdowns.

As a result, pre-tax profit for the six months to June fell to £15 million, down from the £222 million ITV reported over the same period a year ago. The collapse in ad sales led to a 50% fall in EBITDA to £165 million.

‘This has been one of the most challenging times in the history of ITV,’ ITV CEO Carolyn McCall said in its H1 earnings.

‘While our two main sources of revenue - production and advertising - were down significantly in the first half of the year and the outlook remains uncertain, today we are seeing an upward trajectory with productions restarting and advertisers returning to take advantage of our highly effective mass reach and addressable advertising platform,’ she added.

The disappointing set of H1 results has certainly hurt ITV shares, but its worth noting that its figures did come in better than many analysts had forecast. The real test for the company will be whether poor ad sales persist into the second half of 2020.

The outlook for the latter half of the year remains uncertain and unclear, but there are early signs that advertisers are beginning to return, with ad revenue down 23% in July, up from the 42% drop seen in June and the 46% decline witnessed in May.

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