3-Point Checklist: Should You Buy ITV plc, SKY PLC Or Daily Mail and General Trust plc?

Television and consumer media are big business: to profit, should you buy ITV plc (LON:ITV), SKY PLC (LON:SKY) or Daily Mail or General Trust plc (LON:DMGT)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

According to a survey by regulator Ofcom last year, us Brits spend nearly four hours a day watching television, and more than eight hours using media devices like smartphones and tablets.

Television and social media are clearly part of our culture, so it might make sense to invest in the firms that most often gain our eyeballs and media spend — companies such as ITV (LSE: ITV), SKY (LSE: SKY) and MailOnline owner Daily Mail and General Trust (LSE: DMGT).

All three firms have outperformed the FTSE 100 so far this year — but are they still attractive buys?

1. Valuation

ITV’s share price has risen by a staggering 331% over the last five years, while shares in Sky and DMGT have gained around 70% each.

However, all three stocks still look quite reasonably valued, as these figures show:

 

ITV

Sky

DMGT

2015 forecast P/E

16.4

18.5

16.3

2016 forecast P/E

15.1

15.7

14.1

At today’s valuations, it’s certainly possible to envisage further gains.

2. Growth outlook

Sky’s decision to spend £4.9bn on Sky Italia and Sky Deutschland, plus £1.4bn on Premier League football rights last year, pushed the firm’s net debt up from £1.3bn to £6.5bn. Earnings growth from its European operations should help justify the spend, but Sky now has a lot to prove, in my view.

ITV’s approach to acquisitions has been different: the firm has remained largely debt free, and has focused on buying content producers to help reduce its dependency on advertising revenues.

So far, this strategy seems to be working: ITV’s earnings per share rose by 33% in 2014, and are expected to increase by 25% this year and by 9% in 2016.

Daily Mail and General Trust reported a 12% increase in earnings per share last year from its portfolio of consumer and business-to-business operations. Earnings per share are expected to be fairly flat this year, but growth is expected to pick up in 2016, when analysts expect profits to rise by around 15%.

3. What about dividends?

How do ITV, Sky and DMGT compare in terms of income?

 

ITV

Sky

DMGT

2015 prospective yield

2.9%

3.3%

2.4%

Sky offers the highest yield at the moment, but dividend growth is only expected to be 1.5% this year, probably as a result of last year’s spending binge.

In contrast, ITV’s ordinary yield is lower, but shareholders received an additional special dividend last year, and there’s potential for this to happen again this year.

Today’s best buy?

In today’s market, my choice as a buy would probably be ITV, as I’m impressed by its combination of prudent financial management and strong profit growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

I’m not convinced the Dr Martens share price is a bargain. Here’s why

After the bootmaker reported its full year results today, our writer explains why a Dr Martens share price in pennies…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Should I invest in the S&P 500 or FTSE 100?

Ben McPoland thinks one FTSE 100 stock might offer a compromise between high US market growth and cheap Footsie valuations.

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

How much passive income could I earn by investing £100 a month in UK shares?

With just a £100 monthly investment in UK dividend shares, I could achieve a decent passive income stream of over…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

Looking for cheap growth shares? Here’s a FTSE 250 stock to consider in June

Pets at Home shares still look dirt cheap, says Royston Wild. Here, he explains why the retailer might be one…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

The 3 big risks to Lloyds’ share price in 2024!

Is the Lloyds share price one of the FTSE 100's worst investor traps? Royston Wild thinks the bank's shares could…

Read more »

Investing Articles

Up 14% in 2024, what’s next for the Lloyds share price?

This Fool takes a closer look at what prompted the Lloyds share price to rise this year, and offers her…

Read more »

Investing Articles

5 FTSE 100 stocks to consider for a lifetime of passive income

I see lots of cheap dividend stocks in the FTSE 100 right now, but prices are starting to rise. Here's…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

3 growth stocks I’m desperate to buy as the FTSE 100 dips

Never waste a dip, says Harvey Jones. Three of his favourite growth stocks have fallen over the last month and…

Read more »