Should I Buy ITV plc?

ITV LogoI’m window shopping for shares again, and I’m feeling spoilt for choice. Should I pop ITV (LSE: ITV) into my shopping trolley?

Get with the programme

I pretty much gave up watching TV several years ago, when my second child was born, but I’ve kept a close eye on the progress of ITV’s shares. And it’s been riveting viewing. ITV is up 747% in the last five years. In the last 12 months alone, it is up 70%. I only wish I followed my own recommendation, in April last year, to buy this stock. At the time, its shares traded at 126p. Today, you pay 201p. Would I still buy ITV today?

ITV’s full-year results, just published, were highly watchable. Highlights included double-digit profit growth for the fourth year in a row, a 9% rise in total external revenues to nearly £2.4 billion, and a 27% jump in adjusted profit before tax to £581 million. The company enjoyed its best on-screen performance for 10 years, with ITV main channel up 3% and ITV Family share of viewing (SOV) up 4%. That’s impressive, given the digital competition. Not to mention that interwebby thing, that eats up so much of our screen time these days.

Serial disappointment

ITV investors haven’t just been rewarded by its compulsive share price growth. Management hiked the full-year dividend 35% to 3.5p, and paid a special dividend of another 4p, the second in what threatens to become a mini-series. ITV has been condemned by some, however, who felt it could have been more generous in its payouts. I am certainly disappointed by its 1.7% yield.

So all hail switched-on chief executive Adam Crozier. On his watch, ITV’s market cap has quadrupled from around £2 billion to just over £8 billion. He is now four years into a five-year transformation plan that aims to reduce ITV’s dependence on shaky advertising revenue. It now earns £1.2 billion from other sources, up 20% in the last two years. Online, pay and interactive TV are expected to deliver double digit growth again in 2014, helped by the launch of ITV Encore.

All this and the World Cup, too

ITV’s acquisition splurge looks set to continue, although that now seems unlikely to include Channel 5. Success comes at a price, however. In this case, a pricey valuation of 18 times earnings. That’s my biggest concern. My worries are only slightly eased by forecast earnings per share growth of 12% this year and 10% in 2015. But ITV clearly has the X-Factor, and there is still the World Cup to come. 

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> Harvey doesn't own any company mentioned in this article.