Are the ITV share price and 7% yield too good to be true?

Roland Head explains why he thinks ITV plc (LON: ITV) could be a bargain buy.

| 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.

3d illustration of many red arrows pointng on the left and a green one pointing on the right side of the image.

Image source: Getty Images

The ITV (LSE: ITV) share price took a battering earlier this month after the firm’s first-quarter update showed a 4% drop in revenue.

As a shareholder, I didn’t think the figures were too bad. Indeed, some of the numbers in the update gave me confidence ITV is still making good progress and remains attractive.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Online revenue should rise

One element of the firm’s turnaround strategy is to gain share in online viewing and generate more revenue from digital streaming.

On this score, I think ITV logged a pretty solid performance during the quarter. Although total viewing (broadcast and online) fell by 3% to 4.4bn hours, ITV’s share of UK television viewing rose from 23% to 24%.

Viewers watched 96.8m hours of online television, a 16% increase on the same period last year. Meanwhile, the number of users registered on the ITV Hub service rose by 29% to 28.4m. To put this into context, government statistics show there are 27.2m households in the UK. So on average, there’s at least one ITV Hub account for every household in the UK.

This suggests ITV has increasingly detailed information about individual user’s viewing habits. This should be useful as the firm rolls out its new advertising platform, which will provide the kind of tailored advertising we’re used to seeing in our social media accounts. I expect online revenue to rise over the next couple of years.

Production profits

The second element of ITV’s strategy is to focus on content production. Revenue growth of just 1% from ITV Studios was a little disappointing, but this is expected to improve as the year progresses.

For now, I think shareholders should be patient. ITV remains highly profitable and in good financial health. The shares trade on less than nine times 2019 forecast earnings and offer a 7% yield. In my view, that’s too cheap. I remain a buyer.

Should I buy this unloved retailer?

Shares in motoring/cycle goods and services retailer Halfords Group (LSE: HFD) dipped slightly today after the firm said pre-tax profit fell by 24% to £51m last year.

The figures were in line with broker forecasts but highlight the challenges facing the firm. Halfords says profits last year were hit by factors including the mild winter and weaker consumer confidence in the run-up to Christmas.

However, I think the problem facing the firm is that it’s struggling to stay relevant and develop a loyal customer base.

Here’s the plan

The company is aiming to develop a wider range of in-store cycle and car maintenance services while improving its retail offering.

Management was planning to spend £40m-£60m on this transformation in 2019/20, but has now scaled this back to £35m. Apparently, this is being done to reflect current market conditions. I’m not sure I understand this.

What I do understand is that Halfords’ profit margins have been falling steadily since at least 2013, when the company reported an operating profit margin of 8.8%. Today, that figure is 4.8%.

Halfords shares are worth less today than when the company floated on the stock market in 2004. The shares look cheap, on 10 times forecast earnings and with a 7.6% yield. But I’m concerned by the slow pace of change. This retailer is staying on my watch list for now.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

I bought these 4 cheap shares for a market recovery

After months of sitting on my hands, I've finally taken the plunge by buying four cheap shares. Of course, their…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

Here’s why I’m buying more shares in one of my best stocks to buy!

This Fool explains why he is planning on adding further shares of one of his holdings to boost his portfolio.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Just 6% of investment trusts make positive return in H1! What should I do?

The returns from investment trusts have so far disappointed this year. Here's why I plan to continue splashing the cash…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Could this FTSE 100 stock be a bargain to buy and hold?

This Fool believes there are some excellent bargains to be had on the FTSE 100 and details one he is…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Are these the best income shares to buy in 2022?

Andrew Woods wonders if he should add these two companies to his portfolio to create a consistent income stream.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

At 41p, are Lloyds shares now too cheap to miss?

As interest rates rise, Andrew Woods asks if now is the time to load up on Lloyds shares.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 dirt-cheap UK shares to buy right now!

Stock market volatility remains very high. This presents excellent opportunities for investors to buy mega-cheap UK shares like these two…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Should I buy soaring Abrdn stock? Or am I too late?

Abrdn stock jumped 8% in Wednesday morning trading. The share price has tanked this year, so maybe its fortunes are…

Read more »