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Are the ITV share price and 7% yield too good to be true?

The ITV (LSE: ITV) share price took a battering earlier this month after the firm’s first-quarter update showed a 4% drop in revenue.

As a shareholder, I didn’t think the figures were too bad. Indeed, some of the numbers in the update gave me confidence ITV is still making good progress and remains attractive.

Online revenue should rise

One element of the firm’s turnaround strategy is to gain share in online viewing and generate more revenue from digital streaming.

On this score, I think ITV logged a pretty solid performance during the quarter. Although total viewing (broadcast and online) fell by 3% to 4.4bn hours, ITV’s share of UK television viewing rose from 23% to 24%.

Viewers watched 96.8m hours of online television, a 16% increase on the same period last year. Meanwhile, the number of users registered on the ITV Hub service rose by 29% to 28.4m. To put this into context, government statistics show there are 27.2m households in the UK. So on average, there’s at least one ITV Hub account for every household in the UK.

This suggests ITV has increasingly detailed information about individual user’s viewing habits. This should be useful as the firm rolls out its new advertising platform, which will provide the kind of tailored advertising we’re used to seeing in our social media accounts. I expect online revenue to rise over the next couple of years.

Production profits

The second element of ITV’s strategy is to focus on content production. Revenue growth of just 1% from ITV Studios was a little disappointing, but this is expected to improve as the year progresses.

For now, I think shareholders should be patient. ITV remains highly profitable and in good financial health. The shares trade on less than nine times 2019 forecast earnings and offer a 7% yield. In my view, that’s too cheap. I remain a buyer.

Should I buy this unloved retailer?

Shares in motoring/cycle goods and services retailer Halfords Group (LSE: HFD) dipped slightly today after the firm said pre-tax profit fell by 24% to £51m last year.

The figures were in line with broker forecasts but highlight the challenges facing the firm. Halfords says profits last year were hit by factors including the mild winter and weaker consumer confidence in the run-up to Christmas.

However, I think the problem facing the firm is that it’s struggling to stay relevant and develop a loyal customer base.

Here’s the plan

The company is aiming to develop a wider range of in-store cycle and car maintenance services while improving its retail offering.

Management was planning to spend £40m-£60m on this transformation in 2019/20, but has now scaled this back to £35m. Apparently, this is being done to reflect current market conditions. I’m not sure I understand this.

What I do understand is that Halfords’ profit margins have been falling steadily since at least 2013, when the company reported an operating profit margin of 8.8%. Today, that figure is 4.8%.

Halfords shares are worth less today than when the company floated on the stock market in 2004. The shares look cheap, on 10 times forecast earnings and with a 7.6% yield. But I’m concerned by the slow pace of change. This retailer is staying on my watch list for now.

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Roland Head owns shares of 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.