ITV shares could fall over ad sales ahead of H1 earnings

ITV continues to see its share price struggle as advertising revenues fall further amid threats of a ban on junk food ads before the 9pm watershed, with investors eager for an update on the broadcaster’s performance when it unveils its half-year (H1) earnings on Thursday 6 August.

Industry experts have warned that the ban, if approved, could potentially cost ITV up to £100 million in lost advertising revenues, adding to the mounting losses the broadcaster has had to bear amid the Covid-19 pandemic.

Cutting costs, suspending dividends and halting production amid Covid-19

The coronavirus outbreak has taken its toll on ITV Studios, with the production unit forced to halt shooting its various shows, leading to hundreds of staff being furloughed.

The broadcaster was also forced to suspend its dividend and significantly cut capital expenditure in order to shore up its balance sheet so it can weather the economic fallout from the crisis.

Unsurprisingly, many analysts are expecting ITV’s upcoming results to disappoint investors. However, analysts at Deutsche Bank upgraded ITV to a ‘buy’ rating ahead of its latest earnings and upped their price target from 80p to 120p per share, implying a potential upside of 103%.

‘Traditional media formats including TV and Print have come under significant structural pressure over the past few years as consumers have moved online and advertisers have followed suit,’ Deutsche analyst Nizla Naizer said in a note.

‘However, TV has fared better than its print peers and, with enough content and digital avenues of their own to keep their viewers engaged, should be able to maintain their not-insignificant share of the advertising pie going forward,’ she added.

ITV is trading at 59p per share at the time of publication, with the stock 60% down year-to-date.

ITV: outlook for 2020

Based on the myriad of challenges the broadcaster is facing this year, it will be interesting to see if the company has to downgrade its 2020 financial guidance.

At the start of the year, ITV forecast total advertising revenue to grow by 2% in Q1, despite early indicators suggesting that total ad sales would be down 10% in April – they ended up falling 42%.

In March and April, ITV saw a significant reduction in travel advertising as a result of the coronavirus pandemic. However, despite ongoing economic uncertainty due to Brexit, the British broadcaster said that ITV Studios will deliver revenue growth over the full year.

‘Over the medium term we continue to expect that ITV Studios revenues will grow by at least 5% CAGR with a 14%-16% margin,’ the company said in a statement.

ITV plans to deliver double digit growth in online revenues and growth in direct-to-consumer in 2020.

‘We are making good progress in each area of our strategy and our investments in data, technology, online and in streaming will enable ITV to be a sustainable, diversified and structurally sound digital media and entertainment business,’ ITV CEO Carolyn McCall said before the start of the 2020 financial year.

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