BoAML: ITV results trigger consensus downgrade
ITV family net advertising revenues (NAR) grew 12% in Q1, while group revenues were up 11% to £500 million, marginally ahead of Bank of America Merrill Lynch’s (BoAML) forecast of £494 million. ITV’s positive results were driven by stronger growth in external content.
ITV now expects family NAR to be up 6% in April, down 9% May and down 15-20% in June, according to BoAML.
“We believe the slowing ad momentum reflects tougher comps, higher input cost prices, Japan/Middle East uncertainty, and a deteriorating consumer environment,” BoAML said.
“We assume advertisers (across Europe) use any H1 ad savings to bolster FY profitability rather than fully-reinvest in H2. While Sept/October may see some support from the Rugby World Cup, this is likely to be limited by the time zone, and Nov/Dec face tough normalised comps (VAT rise in Jan).
“In our view, the slowdown represents a consolidation phase within a cyclical recovery (ad growth > GDP growth), albeit one muted by ongoing structural pressures, and expect European ad growth to accelerate in 2012 with additional support from the Olympics, Euro 2012.”
ITV’s share price is likely to be constrained by consensus downgrades and weak ad momentum over the summer, BoAML said. “Furthermore, the slowdown is likely to shift focus back to longer term structural pressures with upside increasingly contingent on management’s ability to deliver on its turnaround strategy.”
Speaking at ITV’s annual general meeting yesterday, chairman Archie Norman told shareholders: “It would be all too easy to now take our feet off the pedal and carry on thinking everything is alright really. Even after the bounceback the market is only at the same levels as 1999. TV advertising is like a faulty shower, it either blows too hot or too cold. Despite the oscillations in the market [from year to year], in the long term it is likely to be flat at best.”
Channel 4 has also released its financial results, with pre-tax profits up £2.2 million to £54 million in 2010. However, the broadcaster warned that revenues for the coming year look flat.
Channel 4 enjoyed a post-recession revival last year, with total revenue up 12.6% year on year to £935.2 million. Operating profit rose to £49.3 million from £3.9 million, although Channel 4’s main network continued to lose money – down £7.7 million. The broadcaster’s digital channels, including E4, saw revenues rise nearly 13% year on year to £204.6 million, with operating profit increasing marginally to £54 million.
The broadcaster’s chairman Lord Burns said the growth in ad revenue last year was “more significant than anyone had expected”. He added that TV audiences had been “relatively unaffected” by digital media, but warned it was an “intensely competitive environment”.
“On the other hand we also believe that our recent robust commercial performance coupled with prudent financial management during the last few turbulent years does mean we are in a good position to face the challenges and the opportunities of the future,” he said.