The ITV (LSE: ITV) share price has suffered a bad run over the last few weeks. Trading at 140p in late April, the shares now change hands for just 114p, meaning the stock has lost nearly 20% of its value. Here, I’ll take a look at why the share price has fallen and explain what I’d do about the stock right now.
Aside from general market weakness (the FTSE 100 has also fallen recently), one of the main reasons ITV’s share price has dipped is that the group’s first-quarter trading update, released last week, was rather underwhelming.
Although CEO Carolyn McCall advised the company is “making good progress in delivering the strategy,” realistically, there was little to get excited about in the update as total external revenue for the quarter fell 4%. ITV blamed the timing of Easter and continued economic and political uncertainty for this weakness.
One of the most disappointing aspects of the update was the measly 1% growth in ITV’s Studios division. This is the part of the business that has been generating robust growth in recent years and helping to stabilise group revenues, so growth of only 1% here is a little concerning. However, the company did say it remains confident it will deliver good organic revenue growth in ITV Studios over the full year.
Compounding ITV’s challenges, its popular talk show Jeremy Kyle was taken off-air indefinitely yesterday after a guest died a week after appearing on the show. ITV said: “Given the seriousness of this event, ITV has also decided to suspend both filming and broadcasting of The Jeremy Kyle Show with immediate effect in order to give it time to conduct a review of this episode.”
According to reports today, ITV is now under pressure to permanently pull the show, so this adds further uncertainty for the group. All in all, it’s a challenging time for the company now.
How I’d play ITV
I already own ITV shares, having bought a small position in late 2017 at around 170p. So, after the recent share price fall, I’m down over 30%, which is frustrating. That said, I have received some big dividend payments from the stock since I bought in, and I’ll be receiving another generous cash payout next week, so these lessen the blow.
For me, ITV is a ‘hold’ right now. Clearly, the group has challenges. Yet I like the company’s strategy – it’s focused on delivering in the areas that it can control such as content, while it is looking to reduce its reliance on TV advertising, which it cannot control.
The dividend prospects also remain appealing. The company has advised it expects to pay out at least 8p per share for FY2019, which translates to a yield of nearly 5% on my purchase price. On today’s share price, that’s a yield of a high 7%.
Finally, the valuation is so low there’s room for upside. Currently, the forward P/E is just 8.6. From a value perspective, that ratio looks attractive. Interestingly, I read last week portfolio manager Simon Gergel, who runs the income-focused Merchants Trust, has been buying ITV recently because it’s “quite lowly rated.”
So I’ll be holding onto my ITV shares for now. With the company regularly paying me big dividend cheques, I’m happy to wait for a turnaround here.
Edward Sheldon owns shares in ITV. The Motley Fool UK has recommended ITV. 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.