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With the ITV share price at 125p, could it become a takeover target?

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Last October, the UK stock market was valued at a huge discount to other major markets. By some measures, this gap was the widest since 1973. Since then, UK shares have soared, with the FTSE 100 index leaping by more than a quarter (27.9%) since Halloween. Despite these gains, this month has already seen two takeover approaches for major UK-listed companies. Perhaps foreign buyers are catching on to the bargains on offer in London? For me, ITV (LSE: ITV) is a FTSE 250 company that might fall to a bid, due to persistent weakness in the ITV share price.

The ITV share price has collapsed since 2015

At its early-2000 and mid-2015 peaks, the ITV share price briefly topped 270p before slumping. Five years ago, ITV shares hovered around 205p. But they declined steadily since 2015/16, ending 2019 at 151p. Then Covid-19 pushed the broadcaster’s stock off a cliff. From January to April 2020, the ITV share price went into meltdown. As the coronavirus pandemic swept the globe, the media firm’s stock plunged lower and lower. At its 2020 lows, it crashed to an intra-day bottom just above 50p on Meltdown Monday (23 March). That represented a loss of more than two-thirds (66.9%) in under three months. ITV shares then hit a closing low of 54.42p on 3 April 2020.

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ITV shares come roaring back

Happily, early April 2020 was the share price’s rock-bottom. By early June, the price had spiked above 88p, but this relief rally didn’t hold and, by late July, the shares were back below 57p. After ITV shares were tossed into the bargain bin last summer, they caught my eye. On 6 August 2020, with the share price limping along at 60.34p, I said the shares were simply too cheap. My call proved to be timely, as the stock has skyrocketed since.

On 11 August last year, I suggested that, “ITV would be a tasty morsel for a much larger media rival. Therefore, I foresee perhaps as much as 100% upside from here.” The ITV share price was 65.24p back then. As I write, the stock trades around 125.55p, with just under 5p to go before my forecast is spot on. Even so, ITV shares are up 92.4% in the intervening nine months. But I think there might be more gains to come.

Could ITV become a takeover target?

When I look at the ITV share price and the recent financial results, I see a decent business treading water. But I can also see two potential catalysts for a turnaround of the business and re-rating of the shares. The first would be a boardroom clearout, from CEO Carolyn McCall downwards, but this is unlikely. The second would be a hostile (or even friendly) bid for the  entire business, currently valued at just over £5bn. This might inject new life into the sluggish shares.

However, ITV is battling strong headwinds today. Advertising revenue — its lifeblood — slumped in 2020. Viewer figures have been in steady decline for a decade, only curtailed in 2020 by global lockdowns. Pay-TV providers and online-streaming services are grabbing ever-larger slices of the broadcasting pie. But ITV’s two powerhouses — the Love Island reality-TV show and the delayed UEFA Euro 2020 tournament — should give it a big boost from June onwards. On balance, I’d be a cautious buyer at the current price, backing ITV as a long-term investment, regardless of whether or not it gets taken over.

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Cliffdarcy has no position in any of the shares mentioned. 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.

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