The UK stock market has been shrinking for years. Many companies have delisted from London, while fewer firms are opting for UK listings. Indeed, it often seems to me that investors are selling off corporate Britain on the cheap. And ever-more FTSE 100 and FTSE 250 businesses are being sold for a song.
Feeding on the FTSE 250
For the record, my family portfolio included five mid-cap stocks at the start of this year. One — investing platform Hargreaves Lansdown — has already been taken over by private equity. Its shares finally disappearing from the London stock market in March.
A second of our FTSE 250 holdings is also in play: well-known insurer Direct Line Insurance Group. This is in the later stages of being acquired by larger UK rival Aviva, whose stock we also own.
And now rumours are emerging that a third of our mid-cap holdings may soon be ‘in play’. But who is it?
ITV looks cheap to me
Over the past two or three years, I’ve done lots of bargain hunting among UK stocks. As an old-school value and income investor, I like owning shares priced at low multiples of earnings and with market-beating dividend yields.
In mid-2022, my wife and I bought ITV (LSE: ITV) shares for our portfolio, paying 67.8p a share for our stake. We bought into the UK’s largest commercial terrestrial broadcaster — founded in 1955 — as I saw a bright future for its production (content), digital, and streaming arms.
That said, core advertising revenue from ITV’s television channels has been declining for years, as companies cut back on TV commercials. Much of these revenues have instead flowed to the mega-cap tech firms that dominate online advertising.
As I write (28 April), ITV shares trade at 78.15p, valuing this group at £2.9bn. This leaves the share price up 8.4% over one year and 4.4% over five years. These numbers are nothing to get excited about, but this stock’s dividend yield is a healthy 6.4% a year. This cash yield is approaching twice the Footsie‘s dividend yield of 3.5% a year.
The French connection
Now the Financial Times is reporting that French media firm Banijay Group is in early talks to buy either this whole group or just ITV Studios. However, I’ve heard similar rumours before involving potential suitors including private-equity funds and Abu Dhabi-backed RedBird IMI, owner of ITV rival All3Media.
Typically, when such merger & acquisition news breaks, the takeover target’s shares leap. However, ITV stock is actually down 3.3% today, placing it among the FTSE 250’s biggest fallers. Thus, perhaps I should take this latest rumour with a pinch of salt?
In summary, while it’s clear to me that this FTSE 250 business is undervalued, there is no certainty that any bid for ITV will emerge any time soon. For the immediate future, my wife and I will hold tightly onto our shares and await developments!
