Anyone who’s avoided all news flow in the last week or so, probably won’t know that ITV (LSE: ITV), and consequently ITV shares, are going through a rather uncertain time of late. The rest of us are very well aware of it.
Is this a clear sign for me to steer clear or a great opportunity to buy?
Under scrutiny
It’s not my intention to comment on the details surrounding one of its high-profile presenters. What’s more important for Fools is how recent revelations impact confidence in management and whether the investment case has been damaged as a result.
We now know that members of the board are due to be questioned on the matter by MPs next Tuesday. Clearly, any inkling that anything was swept under the carpet and/or the existence of a toxic culture won’t reflect well on CEO Carolyn McCall and her team. Heads might roll, perhaps rightly.
What’s happened to ITV shares?
Interestingly, the market reaction to the state of affairs at ITV has been fairly muted. As I type, the share price has fallen roughly 10% in the last month. That’s clearly not desirable but it’s hardly a disaster. In fact, the shares still register as flat in the last year.
Naturally, that sort of performance pales in comparison to other UK stocks, some of which have been flying. Ironically, one notable winner has been budget airline easyJet — a company formerly led by the aforementioned McCall.
Of course, I may be jumping the gun here. We could see more selling next week depending on what comes to pass. News that car dealer Arnold Clark has decided not to renew its sponsorship deal for flagship ITV show This Morning doesn’t bode well.
All that said, I think there’s good value here.
Great value
ITV shares currently trade on a price-to-earnings (P/E) ratio of eight for the current year. That’s low relative to the ‘consumer cyclicals’ sector and the market as a whole.
It also looks a good deal considering the fundamentals. Margins and returns on capital are consistently high. The intellectual property owned by ITV is worth a lot and I’ve long felt that its Studios arm isn’t given the attention it deserves from the market.
There are dividends up for grabs too. Based on a mooted cash return of 4.82p this year, the stock yields 6.8%. For perspective, that’s more than double the 3.25% yield of the FTSE 250 as a whole.
It’s also more than I’d get from cash savings accounts which, admittedly, have started to look far more appealing of late.
Temporary pain
I have no better idea than anyone else where ITV shares will go next. However, there’s certainly no reason why they can’t go lower if the aptitude of existing management is further questioned.
Then again, the reaction to similar events in the past is telling. Ultimately, viewers and investors quickly forget about revelations relating to the personal lives of celebrities and presenters. The former just want to be entertained; the latter just want the money to keep rolling in.
So, while I wouldn’t be surprised if the stock were under the cosh for a while, those buying in the near future could benefit over the long term.
Notwithstanding this, the need to stay diversified can never be overstated.
