Several times a week, I go ‘bottom fishing’ in the FTSE 100. This involves trawling the blue-chip index, looking for ‘fallen angels’ — beaten-down shares in otherwise sound companies. And as I view the FTSE 100 as cheap in historical terms, I usually find no shortage of bargains. But today I spotted one battered stock that has crashed spectacularly in recent weeks.
FTSE 100 winners and losers in 2002
So far in 2022, the FTSE 100 has lost just 0.2% of its value. However, as you’d expect, some of its constituent shares have performed far better than others. For example, in the three months ending yesterday (24 March), 29 FTSE 100 shares have increased in value. These gains range from 37.6% to 0.2%. The average rise across all 29 winners is 15%.
At the other end of the scale lie 71 losing shares. Losses across these laggards range from 0.2% to 37.7%. The average drop across all 71 losers is 13.6%. Since I’m bottom fishing, I’m particularly interested in the biggest fallers. For the record, 20 FTSE 100 shares have lost at least a fifth (20%+) of their value over the past three months. And #95 on this list of Footsie flops caught my eye today.
ITV shares have crashed since 11 February
The fallen angel I found is ITV (LSE: ITV). I’ve had my eye on this FTSE 100 share since it collapsed during the Covid-19 crisis of spring 2020. At its 52-week high, the broadcaster’s share price peaked at 134.15p on 14 June 2021. As I write, ITV shares trade at 81.42p, down almost two-fifths (-39.3%) in around nine months.
What’s more, ITV shares were doing fine until Friday, 11 February (closed at 123.65p), when they began sliding. But the real damage was done when the group released its full-year results on Thursday, 3 March. As my Foolish friend Zaven Boyrazian pointed out that day, ITV’s yearly revenues rose by 24% in 2021 to a record high of nearly £3.5bn. This generated an operating profit of £519m, 46% ahead of 2020’s figure.
So why has this FTSE 100 share collapsed recently? Primarily, analysts were concerned about ITV’s bold plans for spending on growth. The broadcaster and producer — founded in 1955 — is lifting spending to compete with streaming giants such as Netflix, Amazon Prime, and Disney+. But original, high-quality content is both expensive and risky. On the other hand, ITV has a strong balance sheet (with total liquidity of £1.5bn and just £414m of net debt at end-2021).
I’d buy ITV at this price
At their 52-week low, ITV shares collapsed to just 69.28p on 7 March. I’d have loved to have bought at this low, low price. But even at today’s price of 81.42p, I see deep value in this FTSE 100 share. Currently, the entire group is valued at under £3.3bn. If I had this sum, I’d buy ITV outright. After all, its shares trade on a price-to-earnings ratio of 8.7 and an earnings yield of 11.5%. Also, the dividend yield of 4.1% a year is slightly above the FTSE 100’s cash yield.
At this depressed price, ITV and its cheap shares might well become a takeover target for a well-funded rival player or private-equity bidder. Given that its shares traded close to 220p five years ago, this looks like a bargain to me today. I don’t own this FTSE 100 share, but would gladly buy it at the currently depressed price, despite the risks facing ITV!