This iconic value share yields 8.3%. Is there a catch?

Christopher Ruane already owns this UK value share. It hit a 52-week low this week. Considering the outlook, should he buy, hold, or sell?

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One value share I already own has been getting cheaper. Does that fall in price mean I maybe made a mistake buying it? Or could now be a good chance for me to purchase more?

National name

The value share in question is ITV (LSE: ITV). As one of the country’s main terrestrial television broadcasters for decades, it is a British icon.

But the business is about a lot more than just terrestrial television. It has been relentlessly growing its digital footprint and also has a large business offering production facilities to other broadcasters.

But I would say ITV firmly meets the definition of a value share at the moment.

After losing 60% of its value over the past five years, the shares now trade on a price-to-earnings ratio of just 9. They also offer an 8.3% yield. That puts it among the 20 highest yielding FTSE 250 shares.

Why the cheap price?

At surface level, the economics of the ITV business look strong. Last year, revenues came in at £3.7bn. Post-tax profit was £435m. That looks high for a company that has a market capitalisation of £2.4bn.

In a trading update last week, the business said the first nine months of the year saw revenue in line with last year.

A flat revenue performance might not sound good. But one fear keeping many investors away from this value share is that a weak advertising market could push ad sales at ITV down sharply. So far, that does not seem to be happening though.

Another trigger for a weak share price was the company’s announcement last year of its digital plans, which were poorly received by the City. But from a business perspective they look like the right move. The company expects to deliver at least £750m of digital revenues by 2026.

Possible bargain buy

But ITV shares continue to be out of fashion with many buyers. The shares touched a 52-week low this week despite last week’s trading statement not containing any big, unexpected bad news.

That makes me think this could be the sort of value share that turns out to be a bargain.

If I bought it now and held it for five or 10 years, hopefully I might see the share price climb. On top of that, I could also earn sizeable dividends. The business is committed to targeting an annual dividend of at least 5p, which it says “is expected to grow over time”.

As well as an advertising downturn there are other risks here that could turn out to be a catch when assessing the seeming cheapness of ITV shares. Less activity in the UK film and television production sector could hurt demand at the studios business, for example.

But I see ITV as a classic example of a value share, given the seeming mismatch between share price and business prospects. If I had spare cash today I would happily buy more for my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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