RBS broker: ITV acquisition of Five could boost earnings 24%

An RBS broker’s note has called ITV “the most logical buyer of Five”, estimating that an acquisition could boost ITV’s earnings by 24%.

Parent company RTL is currently exploring a disposal of Five, with RBS estimating ITV could deliver £70 million in cost synergies and £45 million in revenue synergies (the latter achieved by reducing Five’s pricing discount to ITV1 from 40% to 20%).

A deal would also see the ITV family audience share increase from 23.7% to 30%, said RBS, with its share of the commercial audience increasing from 36% to 45%, while its share of TV advertising would increase from 43% to 52%.

“The latter is high but still below the level at which CRR was introduced in 2003, although arguably the market definition should be broadened given the rapid growth of internet advertising: 27% in 2010 vs 3% in 2003.”

RBS analyst Paul Gooden said: “The Conservatives were strongly in favour of deregulating ITV when in opposition, so while a Competition Commission enquiry will likely still be needed, we think ITV’s chances of acquiring Five are better than most assume.”