Timing a turnaround investment’s difficult. The ITV (LSE: ITV) share price is a good example. The television group is making good progress with its plan to become a global content producer and the UK’s leading streaming service.
But ITV shares are still around 30% lower than they were at the start of 2022, just before CEO Carolyn McCall laid out her plans.
Why aren’t investors tuning into ITV?
ITV really is making progress. Revenue from its ITV Studios content business – which sells programmes to streamers and other broadcasters – has risen from £1,760m in 2021 to £2,170m in 2023.
The company’s digital streaming service, ITVX, is also growing. Digital advertising revenue has risen from £293m in 2021 to £415m last year.
The only problem is that the traditional television advertising business isn’t doing so well. Advertising sales on regular broadcast television have fallen from £1,664m in 2021 to £1,363m in 2023. Admittedly, last year saw a nasty advertising downturn. McCall said it was the worst slowdown since 2009.
She’s confident things will improve, but the wider market isn’t yet convinced. Many investors believe ITV’s still too dependent on so-called linear television.
I think they’re wrong
ITV’s strategy looks sensible to me. And I’m particularly excited by the group’s growing footprint in the US content market. To me, that looks like a huge long-term growth opportunity.
Back at home, ITV’s continuing to expand its streaming services, catching users who don’t want to watch traditional linear TV. The company says it’s on plan for digital revenue to reach £750m by 2026. I don’t see any reason to doubt this.
The business remains pretty profitable too. ITV’s operating margin’s about 14%. Adjusted earnings are expected to rise by around 18% to 9.2p in 2024.
The share price is hovering around 78p, as I write. These forecasts price ITV shares on eight times forecast earnings, with a well-supported 6% dividend yield.
I think that’s too cheap for this business. City analysts have an average price target of around 95p for ITV. My sums suggest a fair value somewhere between 90p and 120p.
As a shareholder, I’m hopeful that if ITV continues to deliver on its plans over the remainder of this year, the shares could reward my patience.
Will 2024 be a turning point?
Markets hate uncertainty. Institutional investors can be cautious about companies that going through changes.
But in my experience, success is usually rewarded eventually. If ITV can stabilise its advertising revenue this year and deliver a confident outlook for 2025, then I think the cheap valuation on offer here could become irresistible to investors.
Obviously, I have no idea what ITV’s share price will be at the end of this year. No-one can predict short-term share price movements. However, I think there are some good reasons to be confident about the outlook for ITV shares for the rest of this year.
