Every quarter, members of the FTSE 100, FTSE 250, and other UK market indexes get reshuffled. The biggest quarterly gainers get promoted to the big leagues, while the biggest losers get relegated. The latest reshuffle happened on Wednesday, based on Tuesday’s closing prices. As widely expected, terrestrial broadcaster and producer ITV (LSE: ITV) returned to blue-chip glory. But with the ITV share price already up 125% since last July, what might drive it higher?
The crashing ITV share price
Congratulations to ITV on its uplift from the FTSE 250 to the FTSE 100. This elevation means that FTSE 100 tracker funds will buy ITV shares to balance their portfolios. Anticipatory buying may partly explain why the ITV share price hit a 52-week high of 131.5p two days ago.
However, the ITV share price is still a fraction of its former highs. Six years ago, the shares hit 270p in mid-2015, but then began a long, steady decline. Five years ago, the share price was below 214p. Before the pandemic, the stock closed out 2019 at 151p. Then ITV shares took a savage beating as Covid-19 infections exploded. On 23 March 2020 (‘Meltdown Monday’), ITV stock crashed below 50p, before rebounding. By 3 April, the stock had hit a closing low of 54.42p — almost £1 lower in just over three months. Yikes.
ITV bounces back hard
In early August 2020, I argued that the ITV share price was simply too cheap at 60.34p. My belief proved correct and, by 30 October, the stock had climbed to 72.14p. But that was only the start. News in early November of several vaccines effective against Covid-19 electrified stock markets and lit a fire under ITV stock. On Thursday afternoon, the ITV share price hovered around 128.3p, down 2.55p (2%) on the day. That’s almost 68p — a whopping 112.6% — above my August 2020 call. In other words, ITV stock has more than doubled since I said the shares were a bargain. Obviously, I’m delighted with the accuracy of my forecast, but what next?
Could the stock go higher?
Long experience has taught me to be cautious when trying to predict future share prices. But with the world economy beginning to roar to life, the ITV share price could benefit from several positive trends. First, from April onwards, ITV anticipates a strong rebound in advertising revenues. After a challenging first quarter, ITV expects a 60% to 75% uplift in April alone. Second, major spectacles such as reality-TV show Love Island and sporting events such as the UEFA Euro 2020 football tournament should bring in millions of extra viewers. Again, this could lift ITV’s revenues.
Third, ITV has been cutting costs hard. It reduced expenses by £116m in 2020, more than double its target of £60m. These efficiencies should directly improve ITV’s bottom line. Fourth, a 6% increase in ITV Hub users to 33.6m in Q1 is another welcome trend.
Then again, ITV faces several strong headwinds. These include the increasing power of media mega-conglomerates that gobble up content and viewers across the globe. Also, the inexorable rise of on-demand streaming is an ongoing threat to ITV. I don’t own ITV stock in my family portfolio, yet I remain positive on the ITV share price today. However, with the shares having climbed so very steeply, I’m obviously a less enthusiastic buyer now than I was a year ago!
