ITV consensus expectations ‘too high’ says Berenberg

UK commercial broadcaster ITV faces significant “headwinds coming in advertising” and the consensus view of its financial prospects for this year and next are “too high”, according to analysts at Berenberg.

Berenberg’s analysts believe that the commercial broadcaster’s strong first half results were “largely to do with phasing” of costs in media and entertainment and of revenue in its studios business.

The bank predicts that overall advertising revenue will decline by 7% next year, in part due to the lack of a significant international football tournament, which would nevertheless leave the top line 3% above pre-pandemic levels – this despite an expected recession in the UK.

Other headwinds facing ITV include a predicted decline in viewing of 18% compared with 2019 levels and new advertising competition from streamers as they introduce ad-supported tiers.

Berenberg said that ITV’s improved ad performance in the first half was concentrated in the first quarter, with the second quarter up only 2% year-on-year.

The analysts said that the bulk of the year-on-year increase in the first half was from the travel business, which was largely shut down in the first half of 2021 but which rebounded in the second half of last year.

Berenberg said that “the comparable will be much tougher in the second half” of this year for travel-related advertising.

Retail advertising, on the other hand, grew only by 1% in the first half year-on-year.

“Retailers are seeing both revenues and margins squeezed, and brand advertising seems an obvious cost category where temporary cuts can be made,” said the analysts.

ITV saw a record jump in revenue in the first half, but the impact of investing in content and tech for soon-to-launch streamer ITVX hit profits.

ITV as a group posted “significant revenue growth” of 8% at £1.68 billion, but EBITA was down 3% to £318 million, which the broadcaster said was because of “additional disciplined investment of £58 million in content and £20m in data and technology ahead of the launch of ITVX.”