ITV outlook darkens as advertisers ‘rein back spending’

The outlook for ITV has deteriorated significantly as advertisers pull back on spending amid anxiety about Brexit, according to analysts at Berenberg.

According to the German investment bank’s analysts, spot net advertising revenue for ITV looks set to fall by 8% in Q1, down from an earlier prognosis of a 3-4% decline.

“Despite bullish headlines about how the UK is faring after the Brexit decision, it seems advertisers, particularly retail and food, are pulling back spend in anticipation of tightened consumer budgets and margin squeeze related to inflation on cost of goods sold,” said Berenberg.

The analysts maintained their negative 5% forecast for the full year, arguing that this is a “realistic, possibly optimistic” view, with consumer spending likely to “become more muted as inflation rises and the reality of Brexit sets in”.

Analysts Sarah Simon, Alastair Reid and Robert Berg also argue that some advertisers may face pressure from inflationary cost increases that they are unable to pass on to consumers, leading them to cut back on discretionary costs such as advertising.

Berenberg’s analysis admits that ITV’s flagship channel has started the year well in terms of year-on-year audience share gain, but holds that the broadcaster’s other channels remain weak. The analysts also note a shift of advertising spend to direct-response and smaller channels, which could play badly for the commercial broadcaster.

Berenberg maintained its ‘hold’ rating and a price target of 200p.

Berenberg’s downbeat assessment comes as ITV revealed it is to close its London Studios facility with the likely loss of 140 jobs. ITV chief executive Adam Crozier told staff that ITV will use studio capacity in the external market to meet its needs. ITV has said the move will create a purpose-build HQ on its South Bank site to bring together all of its London-based staff.