Like a lot of investors, I appreciate a bargain. So I am no stranger to hunting for value shares I can add to my portfolio.
But value shares come in different forms.
Sometimes, a share can be beaten down due to short-term business performance or market sentiment but still offer great long-term value.
On other occasions, though, a value share is cheap for a reason. Customer demands may have changed, for example, meaning that what seems like a bargain in fact turns out to be a value trap.
Great features
One value share I already own continues to trade cheaply. With spare cash to invest, I would be happy to add to my holding.
Last year, the business made a post-tax profit of £435m. It has wide name recognition and a presence in most British homes. Yet the market capitalisation is under £3bn and the shares trade for pennies.
On top of all that, at the current share price the dividend yield is 7%.
All in all, I think those attractive features make this a contender for one of the best UK value shares available to me right now.
Digital opportunities
The share in question is ITV (LSE: ITV).
ITV is well-known for its terrestrial television service. But that is likely to decline over time as the golden days of terrestrial television are long gone. Still, it continues to generate substantial advertising revenues and profits for companies including ITV.
What has grown in parallel with the decline of terrestrial television is digital alternatives.
That poses a risk to ITV. It could lose market share and struggle to sell as much advertising in a more crowded market.
On the other hand, it might present an opportunity.
After all, ITV is a household name with deep expertise in producing content. It has invested heavily in optimising its digital offering over the past several years. If it plays its hand the right way, I think ITV’s long experience could mean the digital age helps it do better than ever.
On top of that, as well as being a broadcaster, ITV offers facilities like production studios to other companies. That part of the business has performed well in recent years and I expect it to do well in future thanks to limited competition.
Why so cheap?
Given those strengths, why does this value share continue to trade for pennies?
The City punished the shares after ITV’s announcement of a new digital strategy last year turned minds to costs rather than potential profits.
The advertising market could also suffer in coming years if the economy is weak. That is a risk to both revenues and profits for the business.
There may be other value shares I could buy right now that will ultimately offer a better potential return than ITV. However, for my own risk appetite, I think the balance of risk and potential reward offered by this stock is as attractive as any other options I can find at the moment.
