3-Point Checklist: Should You Buy ITV plc, SKY PLC Or Daily Mail and General Trust plc?

According to a survey by regulator Ofcom last year, us Brits spend nearly four hours a day watching television, and more than eight hours using media devices like smartphones and tablets.

Television and social media are clearly part of our culture, so it might make sense to invest in the firms that most often gain our eyeballs and media spend — companies such as ITV (LSE: ITV), SKY (LSE: SKY) and MailOnline owner Daily Mail and General Trust (LSE: DMGT).

All three firms have outperformed the FTSE 100 so far this year — but are they still attractive buys?

1. Valuation

ITV’s share price has risen by a staggering 331% over the last five years, while shares in Sky and DMGT have gained around 70% each.

However, all three stocks still look quite reasonably valued, as these figures show:





2015 forecast P/E




2016 forecast P/E




At today’s valuations, it’s certainly possible to envisage further gains.

2. Growth outlook

Sky’s decision to spend £4.9bn on Sky Italia and Sky Deutschland, plus £1.4bn on Premier League football rights last year, pushed the firm’s net debt up from £1.3bn to £6.5bn. Earnings growth from its European operations should help justify the spend, but Sky now has a lot to prove, in my view.

ITV’s approach to acquisitions has been different: the firm has remained largely debt free, and has focused on buying content producers to help reduce its dependency on advertising revenues.

So far, this strategy seems to be working: ITV’s earnings per share rose by 33% in 2014, and are expected to increase by 25% this year and by 9% in 2016.

Daily Mail and General Trust reported a 12% increase in earnings per share last year from its portfolio of consumer and business-to-business operations. Earnings per share are expected to be fairly flat this year, but growth is expected to pick up in 2016, when analysts expect profits to rise by around 15%.

3. What about dividends?

How do ITV, Sky and DMGT compare in terms of income?





2015 prospective yield




Sky offers the highest yield at the moment, but dividend growth is only expected to be 1.5% this year, probably as a result of last year’s spending binge.

In contrast, ITV’s ordinary yield is lower, but shareholders received an additional special dividend last year, and there’s potential for this to happen again this year.

Today’s best buy?

In today’s market, my choice as a buy would probably be ITV, as I’m impressed by its combination of prudent financial management and strong profit growth.

However, I don't think shareholders should expect a repeat of the gains seen over the last few years -- if you're looking for stocks that can deliver big gains, you need to get in early.

One approach might be to use the simple 7-step strategy developed by the Motley Fool's market-beating analysts to identify shares with the potential to deliver big profits.

You can find full details of this strategy in "7 Simple Steps For Seeking Serious Wealth".

This report is free and without obligation -- to receive your copy today, just click here now.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.