The FTSE 250 has a fair few names that would be immediately familiar to many in the UK. Some that do well go on to the big league, namely the FTSE 100. Noteworthy examples include JD Sports Fashion and Auto Trader.
However, some household names continue to languish in the FTSE 250. Here, I’ll look at two of them to see if either appeal to me.
Shaken, and stirred
First up, we have luxury carmaker Aston Martin (LSE: AML). I was re-watching Goldfinger (1964) yesterday, which is where James Bond first drives the Aston Martin DB5. The brand has been iconic ever since.
Unfortunately, the stock doesn’t reflect the prestige. Down 97% since listing in 2018, it has been more scrapyard than showroom!
Last year, wholesale volumes fell 9 % to 6,030 cars, as Aston repositioned its model range and experienced weakness in China. Gross margin was 36.9%, a 220 basis points decrease, while the pre-tax loss came in at a hefty £289m.
This year might be better, with a fresh range of models, including the plug-in hybrid Valhalla supercar due in the second half. New CEO Adrian Hallmark has pledged to end the losses within 18 months.
However, my main concern here is the balance sheet risk. Net debt was £1.26bn at the end of March, higher than the current market cap of £862m. Just writing that puts me off buying the shares.
Changing times
Next, we have ITV (LSE: ITV). When we talk about household names, ITV is literally that, with its content pumped into tens of millions of homes across the UK over many decades.
I walked past a house the other day that had the Emmerdale theme tune blasting through an open window. It provoked a strong nostalgia in me, transporting me straight back to childhood in my Nanna’s front room. Heartbeat does something similar.
However, shares of the broadcaster have slumped by 69% over the past decade. And in a sign of the times, Emmerdale will have one full hour cut per week starting in January. Similar changes are being made to Coronation Street.
ITV’s Managing Director of Media and Entertainment Kevin Lygo said this move will help “create headroom in the overall programme budget for investment in programming that can help ITV grow reach in a very very competitive market.”
The fact he said ‘very’ twice is revealing. Due to competition, I just don’t think ITV has anywhere near the mindshare — especially among younger viewers — or competitive edge that it had in the pre-streaming era.
Now, it’s true that its streaming platform ITVX is growing strongly, and now accounts for over a quarter of group ad revenue. This is where I watched Goldfinger, funnily enough.
ITV is also reaching new audiences — and advertisers — through YouTube. Meanwhile, the Studios division, which also makes content for other streamers, remains a valuable asset.
However, I fear ITVX is simply going to replace the traditional broadcast viewership. The stock is very cheap at 8 times earnings, with a 6% dividend yield, but I think that reflects ITV’s future growth challenges.
Looking ahead, Netflix and Amazon Prime Video are likely to become stronger, with larger budgets. I worry that ITVX will increasingly become a small fish in a massive streaming ocean.
Therefore, I see better growth opportunities for my ISA.
