ITV (LSE: ITV) shares have been weak. At just over 72p, the integrated producer and broadcast company’s stock is down around 20% since the end of February.
Although to put that move in perspective, the share price is just about flat over the past year.
A glance at the financial and trading record shows that earnings put in a peak in 2021. Then they fell by around 17% in 2022. And City analysts expect a further hefty decline of almost 30% this year.
Looking out to 2024, the City braces have pencilled in a partial bounce-back of about 11%. But the seven-year trend is down. And falling earnings is never a good look for any business.
A longer-term decline?
In fact, the stock has also been trending lower since around the end of 2015. And I’d argue that a big part of the weakness in profits and the share price might be because of the cyclicality inherent in the business. After all, much of the revenue has historically come from advertising.
But there’s also the possibility that the business could be in long-term decline. The broadcasting industry is competitive. And the recent rumpus around Philip Schofield doesn’t help matters.
The well-known personality resigned from ITV on 26 May and was dropped by his talent agency. However, the company’s This Morning TV programme appears to be bigger than the star presenter and looks set to continue.
There have been rumours that some advertisers have been pulling out of using ITV, but my feeling is the whole affair will blow over quickly – despite the mainstream media’s love of sensationalism.
Indeed, the share price didn’t plunge on the news, it merely continued its already-established decline. And ITV itself will likely suffer little from Schofield’s departure. My guess is it will be a case of the names changing but ITV’s financials remaining the same.
A focus on costs
In May, ITV said it’s managing its costs “tightly” given the challenging macro and geopolitical environment. However, that’s hardly earth-shattering news. And it’s something all businesses should be doing all of the time anyway.
The directors are aiming to save costs of £15m in 2023 as part of a target to save £50m by 2026. But decent growth in revenue, earnings and cash flows remains elusive. And I reckon that’s the real problem here.
In recent financial statements, ITV generated around half its revenue from its media and entertainment operations and the rest from its ITV studios business. But advertising revenues and studio revenues have both been falling. And those declining revenue streams are taking the share price down too.
The big question has to be: is the weakness in the business temporary or something more enduring? And that’s hard to answer. But I have noticed that the stock is near to its previous cyclical lows of a few years ago. And that suggests the possibility of the business and the stock cycling up again in the coming years.
However, such positive outcomes are never certain with any business. So I’m being cautious about ITV shares right now and don’t see them as buys. And that’s despite a dividend yielding above a chunky 6%.
