ITV (LSE: ITV) and Vedanta Resources (LSE: VED) have hammered the FTSE 100 so far this year, delivering big gains for shareholders.
After today’s trading updates from both firms, I ask whether there’s more to come — or whether now might be a good time to lock-in some gains.
ITV
ITV needs no introduction — most of us will watch the company’s free-to-air TV channels on a regular basis.
What might not be so obvious is the way in which ITV has transformed itself into a content and advertising business, whose profits have risen by 412% since 2009 — and are expected to rise by a further 27% in 2015.
ITV’s latest move in its quest to reduce its dependency on income from advertising was to buy a company called Talpa Media, which is best known in the UK as the owner of The Voice, as well as lesser-known gems such as Dating in the Dark.
Whatever your view might be on the appeal of some of these programmes, the strategy has been a massive success for shareholders. ITV’s share price has risen by 332% over the last five years, and by 43% over the last year alone.
What next?
ITV issued a trading statement today, reporting a 12% rise in total revenue during the first quarter, compared to the same period in 2014.
However, the firm’s shares fell by 2% following the announcement, and there were a few notes of caution in the statement. The total share of viewing of all ITV channels fell by 3% during the first quarter, while advertising revenue is expected to be 5–7% lower than last year during May and June, due to the boost provided by last year’s World Cup.
The question for ITV investors has to be what comes next? Trading on 16 times 2015 forecast earnings, and with a 2.9% prospective yield, the shares don’t look overly expensive, but after a strong performance this year, earnings growth is expected to slow in 2016.
ITV still has strong momentum, and I’m not going to try and call the top — but it is something I believe ITV shareholders might want to start thinking about.
Vedanta Resources
Indian multi-commodity miner Vedanta Resources traded briefly below 400p earlier this year, providing bold investors with the chance to pick-up a 10% prospective yield and, as it turns out, lock in a 70% gain in just over three months.
Trading at today’s price of 658p, Vedanta shares look much more reasonably priced. The shares hardly moved following the publication of the firm’s final results this morning, despite news of a whopping $4.5bn non-cash impairment due to lower commodity prices.
One reason for this stability is that Vedanta generates a lot of cash — around $1bn of free cash flow last year, to be precise. This comfortably funded the firm’s $0.63 dividend, which provides a 6.1% yield at today’s share price.
On the downside, the firm is expected to report a loss for the next two years, and net debt is a massive $8.5bn.
Overall, I reckon Vedanta shares are now fairly priced. Income-seekers might want to hold on, but now could be a good time for buyers who bought the shares when they were cheap to lock in a profit.
