It’s been two years exactly since Carolyn McCall, chief executive of ITV, sent the share price crashing by 27% in a day as she announced a plan to ramp up the broadcaster’s adventures in streaming by launching ITVX. The City saw a large investment bill in the offing, plus definitive proof that the days of easy advertising money from old-style linear television were over, and tuned out. The share price has never seen 100p again and was 56p as recently as last month.
But here – finally – comes a hint of better times. The evidence was not the headline numbers from Thursday’s full-year report on 2023, which showed a fall in statutory pre-tax profits of almost two-thirds to £193m and a thumping 15% decline in those linear ad revenues. Rather, it was evidence that the shift towards streaming, which was plainly necessary in the age of Netflix and Disney+, will deliver what it is supposed to do and will cost no more than originally promised.
McCall spelled it out: 2023 was the year of “peak investment” in streaming and the group overall is “well placed to grow profits from here”.
The long-term direction for the traditional ad market is still down, but not at a rate of 15% a year; there’s the Euro 2024 football coming, for starters. The critical new development, though, is that the intended compensatory element – advertising and subscription income from ITVX – is now genuinely compensating. Digital revenues improved 19% and the key 2026 target of hitting “at least” £750m is intact.
In the meantime, ITV is launching another cost-cutting exercise (£50m) even before the last one (£150m) is complete. And last week’s useful news was the £255m sale of its 50% share in BritBox International, the non-UK streaming service, to BBC Studios for £255m. Some City analysts had valued the stake at zero in their models.
Thus one can understand why ITV tends to appear in lists of conventionally undervalued companies that could be takeover candidates in bargain-basement Britain. Older viewers, who sat through speculation involving BSkyB and Virgin Media that went nowhere, will believe takeover tales when they happen. But, yes, one can do a sum-of-the-parts analysis on ITV (market cap: £2.8bn) and come up with numbers well above the current share price.
The hard-to-value unit has always been ITV Studios, the production house, since a chunk of its revenues (from Coronation Street, daytime telly etc) are earned from ITV itself. But that portion is now only 30% and an outside endorsement of the value in TV production came recently in the form of the £1bn-plus at which All3Media is being bought by the Telegraph’s Abu Dhabi-backed bidder. In revenue terms, ITV Studios is twice the size of All3Media and is back to generating 13%-plus profit margins.
Add it all up and two parts of the ITV group, Studios and ITVX, are growing while the third, the broadcaster, still spits out cash in better years than 2023. The balance sheet is in decent shape, a £200m-a-year dividend is secure and the BritBox receipts will be spent on a share buyback. The TV industry is still in a shocking state if you’re a freelancer working in it, but ITV’s investors can breathe again. The shares rose 12% to 68p on Thursday. A corner may have been turned.
