The Motley Fool

Forget buy-to-let. Here’s why I’d rather invest in FTSE 100-member ITV’s share price

With a variety of FTSE 100 shares having recorded disappointing performances in recent months, there may be a number of impressive investment opportunities on offer. In contrast, buy-to-let appears to be declining in terms of its investment potential. Affordability issues could hold back capital growth over the medium term, while tax changes are causing net returns to come under pressure.

With that in mind, FTSE 100-member ITV (LSE: ITV) could offer improving investment prospects. The company has a low valuation, high yield and a strong position within its sector. Alongside another stock which reported on Friday, it may offer a wide margin of safety at the present time.

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Improving prospects

The company in question is integrated metering services specialist Smart Metering Systems (LSE: SMS). Its post-close trading update showed that continued investment during the year has led to a 54% rise in the total number of metering and data assets under management. Total annualised recurring revenue for the year increased by 32% to £75.3m. Its Gas division saw meter recurring revenue rise by 19%, while its Electricity division’s meter recurring revenue almost doubled.

The stock also announced an agreement with Co-Operative Energy to provide services as an integrated domestic smart meter installer and Meter Asset Provider. It is now the preferred supplier to fund and install domestic smart meters on behalf of Co-Operative Energy in certain defined geographic areas, with there being 326,000 meter points within such areas.

Looking ahead, Smart Metering Systems is forecast to post a rise in earnings of 35% in the current year. Since it trades on a price-to-earnings (P/E) ratio of around 0.8, it could offer good value for money.

Low valuation

Also appearing to offer good value for money at the present time is ITV. The company trades on a price-to-earnings (P/E) ratio of 8.5 after recording a period of disappointing share price performance. Its financial outlook has deteriorated, with demand for TV advertising apparently coming under pressure as the prospects for the UK economy have become less positive.

Of course, all cyclical shares see their financial performance exaggerated by the prospects for the economy. From an operational standpoint, ITV seems to be making good progress in terms of maintaining a disciplined stance on costs and building market share. As such, this could be an opportune time to buy it, with it having the potential to generate stronger levels of profitability and share price performance once the UK’s economic performance picks up.

In the meantime, the stock has a dividend yield of around 6.3% from a payout which is covered 1.9 times by profit. Its income appeal seems to be strong due to its large amount of headroom when making dividend payments. Therefore, for value and income investors who have the patience to buy and hold over a multi-year timeframe, it could have significant appeal.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and Smart Metering Systems. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.