ITV Downgraded Again, Carlton And Granada Stock Falls

“The summer has passed and the slowdown in ITV advertising continues unabated,” says ABN. The broker is now forecasting a 15% decline in ITV’s revenues in the next two quarters, with the slowdown looking certain to continue into the first half of next year. Growth forecasts for the year to September 2002 have been reduced from 2% to -5.6%.

ABN’s earnings per share (EPS) estimate for Carlton has been cut by 50% to 1.4p and by 29.4% for Granada to 3.6p. For Carlton this represents less than 7% of the EPS level it achieved in 2000. More significant in ABN’s analysis is that it could take up to 10 years before ITV’s profitability is restored to historic levels.

HSBC concurs, saying that the recent attacks in the US could push ITV’s recovery back by around two quarters (see Forecasts).

Despite the near-term lack of visibility and negative effect of the advertising slowdown, ABN believes that the Buy case for ITV ‘remains intact’. In the meantime, Granada is in a stronger position to weather the downturn than Carlton given its lower exposure to broadcasting and lower vulnerability to digital losses.

ITV ad revenues are expected to drop by 11.8% in the year to September 2001; during 2002 a further 5.6% decline is anticipated, coming from a 13% fall in H1 and a 4% growth in H2. In the year to July 2001, the average decline in ITV revenue was 14.5% according to agency estimates collated by MediaTel (see Brokers Cut Carlton And Granada Forecasts Following Ad Deterioration), as shown below.

ITV Network Ad Revenue (£)
	2000	2001	% Change
January	156,311,973	140,920,000	-9.8
February	151,906,909	143,030,000	-5.8
March	174,000,000	159,700,000	-8.2
April	192,930,000	156,530,000	-18.9
May	173,470,000	138,600,000	-20.1
June	168,740,000	128,210,000	-24.0
July	138,000,000	117,940,000	-14.5
Average	165,051,269	140,704,286	-14.5
Source: MediaTel/MediaTel Insight

H1 2001 TV advertising growth rates
Carlton	-16.4
Granada	-14.3
Scottish	-10.9
Ulster	-4.7
ITV	-14.8
GMTV	-4.5
Channel 4	0.5
Channel 5	-4.8
Satellite	11.5
Total	-8.0
Source: MediaTel/ABN Amro estimates

ITV quarterly growth forecasts 2000-2002 (September year end)
	2000	2001	2002
Q1	9.9	-8.0	-12.0
Q2	18.3	-20.9	3.9
Q3	-3.1	-14.7	3.4
Q4	-3.5	-14.3	4.0
Full year	5.0	-14.7	-0.4
Source: MediaTel/ABN Amro estimates

The collapse in the global advertising markets stems mainly from the bursting of hi-tech and telco advertising bubble and slowdown of the economy in the US. The problem was then compounded by slow economies in the UK and across the rest of Europe, according to ABN.