That’s entertainment — at least, that’s how it is in the world of listed broadcasters. The programming can be knockout and the audiences come flooding in, but unless the advertisers come, too, then companies can have a problem. In the case of ITV, with advertising numbers on the slide in large part thanks to Brexit, it’s difficult to see how it can easily turn resolve the issue when it seems to be beyond its control.
ITV is Britain’s biggest commercial broadcaster and, though it was created in its present form in 2004 via the merger of Carlton and Granada, its history goes back to 1955 and the launch of the first television channel that aimed to turn a profit. It operates a string of traditional TV channels, a freeview service and a catch-up option. It also makes productions through ITV Studios, for its own use and to sell to others, including Netflix and the BBC. Among its best-known programmes are Love Island, Britain’s Got Talent and Coronation Street.
The group makes its money from advertising revenues, through its channels and online, and from sales of programming made in its own studios and fees for its pay-per-view service. Its big new idea, under the leadership of Dame Carolyn McCall, the former Easyjet chief executive, is Britbox, a joint venture with the BBC that will stream programmes and, hopefully, help both broadcasters to compete more effectively with the new programming titans of Netflix and Amazon.
The main stumbling block in an investment case for ITV that is becoming increasingly powerful is that it is vulnerable to changes in the wider economy. Most recently, this has been all about Brexit jitters and how they have deterred advertisers from putting their hands in their pockets until something resembling certainty starts to appear in the outlook for GDP and growth.
ITV, a constituent of the FTSE 100, t has lost a quarter of its value during the past eight months and the shares were off again yesterday, down 2¾p, or 2 per cent, at 134¾p and close to six-year lows.
Although ITV recorded a 1 per cent improvement in its total advertising revenues for last year to £1.795 billion, it warned that its market would be down for the first four months of this year — effectively, the period into the future that it tends to look ahead — by between 3 per cent and 4 per cent. The harsh truth is that the longer the uncertainty persists, the longer media buyers will stay away.
Dame Carolyn (and Adam Crozier, her predecessor) has been doing all she can to reduce the broadcaster’s reliance on the volatility of advertising earnings. ITV Studios is now an impressive programme-making machine, for example making the hit series Bodyguard that was screened on the BBC. Its total revenues grew by 6 per cent last year to £1.67 billion and at a margin of 15 per cent. Add in other revenues, including from pay-per-view and from selling programmes to Netflix et al and ITV is generating a little more than half of its turnover from outside advertising.
The big unknown is Britbox, already up and running in the United States and likely to open for business here during the second half of the year, screening new as well as archive shows. ITV is investing a net £65 million in the venture over the next two years, but the cost to viewers has not yet been set. It is an intelligent move, but as it stands there can be no clarity about any earnings stream.
ITV’s shares change hands for 11.6 times last year’s earnings for a dividend yield of 5.9 per cent. Were it not for the likely pressure on advertising earnings, they would be highly compelling.
ADVICE Avoid
WHY Though it now has a considerably more diverse earnings profile, volatile advertising remains central
Jupiter fund management
Last year Jupiter Fund Management came back to earth. Having had a storming 2017, it all went back into reverse for the FTSE 250 investment manager as clients walked away from one of its investment strategies and it found itself on the wrong side of falling markets.
That the share price rallied after last week’s annual results was really amid investors’ relief that it could have been much worse — particularly on the dividend — rather than any euphoria associated with stellar numbers.
Jupiter was founded in 1985 by John Duffield, who later sold it to Commerzbank. Under Edward Bonham Carter, who took charge as chief executive in 2007, the company was bought by its management and then floated in 2010. A specialist in active management, Jupiter oversees investments from shares and bonds to funds that mix asset classes, on behalf of both individual and institutional investors.
One of its biggest headaches last year was the Dynamic Bond Fund, whose manager, Ariel Bezalel, had attracted £8.7 billion of customer money in 2017. A good portion of that, contributing to total group redemptions of £4.6 billion, went out again last year, mainly after he adopted a highly cautious strategy too early and performance suffered.
The fund recovered in the final two months of the year and early 2019, but it wasn’t in time to prevent a 15 per cent slide in assets under management to £42.7 billion as at the end of December. The 7 per cent rise in the shares on the day of the results was largely on the back of the dividend, a special as well as an ordinary, still coming in at 28.5p, or 90 per cent of underlying earnings.
There is much afoot at Jupiter, not least in the arrival of Andrew Formica, the respected former Henderson boss, as the new chief executive. Jupiter is diverse by investment product and geography, but asset management is increasingly a scale game in the face of the rise of low-cost passive investing. If there is a predator out there, it would be no surprise if Mr Formica found it.
The shares, up 2p or 0.5 per cent to 371¾p yesterday, trade at 11.9 times Numis’s forecast earnings for a prospective yield of 7.6 per cent.
ADVICE Buy
WHY Shares are good value and there is bid potential
