It is hard to believe that, 10 years ago, shares ITV (LSE: ITV) were changing hands for £2.80. Twenty-five years ago they also cost well over £2 apiece. Today, the ITV share price is in pennies.
However, it was over £1 under four years ago. I think it might get there again. Here is why.
Looking backwards – or looking forwards?
It is no coincidence that the ITV share price was much higher a quarter of a century ago than it is today.
Back then, terrestrial television was a huge business. ITV had a strong role in the UK’s terrestrial television landscape.
The growth of digital alternatives means that old-school TV is nowhere near the money machine it once was.
ITV’s advertising revenues from terrestrial operations back then are a thing of the past. The risk of ongoing decline helps explain the fall in the ITV share price.
But while that analysis is true, it misses three key points.
Traditional television watching is in long-term decline. However, it is still substantial. So are the ad revenues it can generate.
ITV has also been pushing aggressively into digital operations.
On top of that, broadcasting is only one element of the company’s operations. It also provides studio and production facilities for other content producers. That is a sizeable business that looks more relevant than ever in a fragmented digital media landscape.
What might trigger a share price move?
What, though, might it take to move the ITV share price up?
News this month that the company was in talks about a potential sale of its broadcasting business gave the share a shot in the arm. It is up 11% over the past month.
Whether or not any bid materialises for the broadcasting business, it could focus more attention on a sum-of-the-parts valuation. That may mean investors pay more attention to the value of the studios business as well as the broadcasting division.
Strong advertising performance could also help the share price move up. Total advertising revenue was flat in the most recent quarter, as compared to the prior year period. Any uptick in ad spending could help the company. Next year’s World Cup could be a possible trigger.
A £1 share price could be feasible
If advertising picks up, I think it could push the ITV share price higher.
The share price would need to rise about 28% from its current level to hit £1.
If a bid does materialise and leads to rival offers, that could also push the price up.
Another potential driver for a £1 share price would be earnings recovery. Statutory earnings per share (EPS) in the first half of this year fell over 80% year on year. Even adjusted EPS fell by almost half.
ITV has proven it has much better earnings potential than it has recently delivered. If it can start doing better, for example through higher advertising revenues or better utilisation of its production facilities, I think it could bring earnings back closer to where they were even in recent years, helping boost the share price.
However, given inconsistent performance in recent years, it remains to be seen whether management is up to that task.
Meanwhile, the advertising market remains subdued. For now, I have no plans to invest.
