This FTSE 100 household name represents a bargain currently trading at less than 70p per share!

Many companies in the FTSE 100 have been left reeling in the Covid-19 pandemic. During the lockdown, demand for television services has increased exponentially. 

The ‘stay at home’ advice has benefitted the streaming industry. It is estimated there were nearly 6m new subscribers to streaming services during the lockdown period. 

Seen as a more traditional television operator, ITV (LSE:ITV) has seen its share price fall below the 70p per share mark. I love a contrarian buy and feel ITV falls into that category right now. You would have to go back to 2011 to pick up ITV shares at the current price. 

FTSE 100 bargain

ITV’s business model is split into two main categories. The broadcast division of the company runs numerous ITV channels, including its flagship channel ITV1. Its other division is ITV Studios, the largest commercial producer in the UK. The studio produces content for its own channels as well as other UK broadcasters. Additionally the studio division has US and other international arms, which further expands its reach.

ITV’s 2019 full-year results show that broadcast generated over 60% of its profits. The FTSE 100 incumbent made an operating profit of £535m on revenue of £3,308m in total. This equates to an above average and (in my opinion) impressive operating margin of 16%. I think that the studio side of the business is where the longer-term value lies. ITV’s unique ability to produce quality content regularly bought by its rivals points towards a long-term opportunity for further growth and success.

Year-to-date, ITV’s share price has fallen nearly 60% which could be seen as problematic. I do not see it that way, myself. The market crash has devastated share prices across the FTSE. 

Trading update

The coronavirus lockdown has affected most FTSE companies, which has prompted the cancellation of many advertising campaigns. ITV were affected by this. It reporting a drop of over 40% in advertising demand in April alone in its first-quarter trading update at the end of May. ITV saw external revenue down by 7% and ITV Studios revenue was down by 11%. On the other hand, broadcast revenue was up 2%, as was overall total viewing, by 2% during this period. 

A take away for me was that ITV experienced its best quarter since 2009 in terms of ITV1’s share of viewing percentage of 17.9%. In my eyes this means ITV does possess good broadcast and studio content that entices viewership to return for more.

Verdict

With restrictions easing throughout the country I believe that ITV will see an upturn in advertising demand and overall fortunes. Furthermore ITV Studios will be able to continue to produce new content to add to its extensive backlog in the vault.

I would consider ITV a great opportunity to pick up shares in a well established company that has consistently made profit. Profit will be affected for the current year due to the pandemic, however, most FTSE 100 companies are in a similar position. ITV has plenty of cash to see it through this tough period as well as a healthy balance sheet. Don’t be put off by a cancelled dividend for 2019 – many other businesses throughout the FTSE have adopted this strategy to preserve liquidity in these uncertain times.

ITV would sit in my buy and hold category. It wouldn’t surprise me if this time next year ITV’s share price has more than doubled.