It’s been another bad day for the FTSE 100 so far. This morning, the index slid another 120 points (2%). As traditional summer ‘market fatigue’ takes hold, it’s not been a great day for ITV (LSE: ITV) to release its latest results.
ITV could exit the FTSE 100
As I write, ITV shares trade at 60.34p, down 0.56p (0.9%) from yesterday’s close, having dropped as low as 57.62p earlier today. This leaves this FTSE 100 share down 43.3% over the past 12 months.
What’s more, this near-halving of ITV’s share price takes its market value to just £2.45bn. That makes it one of the FTSE 100’s smallest members. Thus, it is highly likely that the media group will be ejected in the next quarterly index reshuffle.
ITV’s revenues slump
Being ejected from the FTSE 100 is probably the least of ITV’s worries, because the business is reeling from Covid-19. Indeed, the TV broadcaster has suffered the biggest collapse in advertising revenues in its 65-year history.
Viewing figures rose 4% during lockdown, which is good for ITV, but advertising revenues plunged by 43% in the second quarter. However, this trend is improving fast, with revenues down 42% in June, but only 23% in July. One factor in this fall was the coronavirus-driven cancellation of hit reality-TV show Love Island.
Thanks to collapsing advertising income and production shutdowns, ITV’s half-year revenues sank by a sixth (17%) to £1.22bn. This caused adjusted operating profits to halve to £165m and earnings per share to plummet 53% to 2.9p (from 6.2p).
As a result, the FTSE 100 firm axed its interim dividend (2.6p a share last year).
This FTSE 100 firm still has a future
ITV remains the UK’s biggest commercial free-to-air broadcaster, operating six channels. It is also growing Britbox, an ITV+BBC streaming service, which will be boosted by the return of satirical puppet show Spitting Image.
Today, Carolyn McCall, ITV’s chief executive, commented: “We are seeing an upward trajectory, with productions restarting and advertisers returning.” For example, of 230 productions hit by lockdown, around 70% have been delivered or are back on track.
What’s more, this FTSE 100 (for now) firm has a strong balance sheet and easy access to liquidity. Net debt has actually fallen more than a third (34.5%) to £783m, from £1,195m a year ago. In addition, ITV has access to £1,214m of liquidity (consisting of £385m in cash, a £630m revolving credit facility and an additional £199m facility). Trust me, I think ITV is solid.
Don’t change the channel on ITV
Over the past 52 weeks, ITV shares peaked at 165.9p on 13 December and plunged to just 50.06p on 23 March, during the market meltdown. Thus, they have fallen more than £1 from their 2019/20 high, but are barely 20% above their lockdown low.
It’s difficult to predict, but the shares are valued somewhere between 4.25 and 5 times earnings. That’s very cheap, especially when you consider that the full-year, pre-Covid-19 dividend was expected to be 8p a share. What’s more, ITV is a perennial candidate for takeover by larger rivals. For me, the shares are simply too cheap. I’d buy this FTSE 100 stock today and await future growth and the return of dividends.