ITV Advertising And Merger Outlook From Lehman Brothers
ITV advertising revenues are expected to be flat in the first half of the year, according to predictions from Lehman Brothers analysts. These forecasts concur with the group’s trading updates, released at the respective AGMs in March (see Carlton Sees Challenging H1 For ITV Ad Revenues).
Lehman says that second half advertising levels now look ‘ropey’, after a mixed H1, with Q3 shaping up to be significantly down on last year. The fourth quarter also remains uncertain and would have to grow by 10% to return the full year to the previous estimate of 0% growth. If Q4 falls by 5%, then FY2003 figures fall to around -3.5%.
| ITV Advertising Revenue Forecasts | ||
| Revenue (£m) | YoY Change (%) | |
| Q1 | 469.4 | 4.5 |
| Q2 | 366.9 | -4.7 |
| Q3 | 409.3 | -8.9 |
| Q4 | 396.1 | 1.0 |
| FY2003 | 1641.7 | -2.0 |
| Q1 | 483.5 | 3.0 |
| Q2 | 377.9 | 3.0 |
| Q3 | 429.8 | 5.0 |
| Q4 | 415.9 | 5.0 |
| FY2004 | 1707.1 | 4.0 |
| Source: Lehman Brothers, May 2003 | ||
| ITV Advertising Revenues Historic Growth/Forecasts | |||||
| Q1 | Q2 | Q3 | Q4 | FY | |
| 2000 | 6.0 | 10.4 | 18.0 | -1.7 | 8.1 |
| 2001 | -3.1 | -6.9 | -20.8 | -15.7 | -11.6 |
| 2002 | -11.8 | -14.3 | 6.1 | 6.0 | -4.3 |
| 2003 | 4.5 | -4.7 | -8.9 | 1.0 | -2.0 |
| 2004 | 3.0 | 3.0 | 5.0 | 5.0 | 4.0 |
| Source: Lehman Brothers, May 2003 | |||||
By way of comparison, Merrill Lynch is forecasting that ITV revenues will be down by 1.8% in the year to September (Carlton and Granada’s year-end) and down by 2.5% in the calendar year. The full set of figures is available INSIGHTanalysis: TV Trading Is Very Weak For June.
Financial impact The Lehman Brothers downgrade in advertising outlook has shaved 1% of overall revenues estimates for Granada and Carlton, whilst profits estimates are reduced by 10% and 18% respectively.
Granada’s earnings are expected to fall by 7.3% to £69.5 million, whilst Carlton’s rise by 6% to £34.5 million.
Merger outlook The Competition Commission’s (CC) Statement Of Issues release last week outlined a number of possible restrictions to Carlton and Granada’s planned merger, one of which would force them to sell off their sales house operations (see Carlton And Granada May Have To Sell Sales Houses). This led Morgan Stanley analysts to conclude that the merger ‘might not go ahead’ (see ITV Merger ‘May Not Go Ahead’ Finds Morgan Stanley).
Lehman Brothers says that the Commission’s talk of a sale of both sales houses has surprised investors. Such a requirement would not be acceptable to Carlton and Granada, say analysts. Already reports have emerged that Carlton’s chairman, Michael Green, would call off the merger should this restriction be imposed on the two companies (see Carlton Boss Threatens To Halt Planned ITV Merger).
Lehman maintains that it is unlikely a merger will be permitted with a single sales house due to market share issues in television advertising (see ITV Merger Unlikely With Combined Sales House, Says Lehman Brothers). The exact definition of ‘the television market’ to be considered in this assessment is something which the CC is currently discussing.
The deadline for the submission of the CC’s report is 25 June 2003.