ITV looks up

UK commercial network ITV has received some good news in the shape of a Standard & Poors rating (to BB+) helped by what the agency described as “steady and significant improvement at its broadcasting operations and solid performance at its content production business, ITV Studios, we are raising our assessment of its business risk profile to ‘satisfactory’ from ‘fair’.”  The agency says there are possibilities for an even-higher rating over the next year as greater visibility comes from ITV itself.

“We revised ITV’s business risk profile to “satisfactory” because its overall audience and advertising market shares in the U.K. free-to-air TV market have stabilized and improved, and the company posted a sound EBITDA margin that exceeded 20 per cent over the last two years. In addition, we see solid growth and margins at ITV’s production arm, ITV Studios, which further diversify the business away from cyclical advertising revenues. We consider ITV’s business risk profile to be in line with that of its main broadcasting peers,” says Standard & Poors.

The upward rating applies to both long and short-term activity.  “The positive outlook reflects our revised assessment of ITV’s business risk profile, and the possibility of a one-notch upgrade over the next 12 months if we saw the company’s financial policy and credit metrics as durably commensurate with an investment-grade rating.

“We anticipate that ITV will report low single-digit growth in revenues and broadly stable EBITDA margin. We assume that revenue growth will stem primarily from ITV’s non-advertising segments, while we anticipate flat advertising revenues. Given the uncertain European macroeconomic outlook for 2013, we prudently assume a low-single-digit decline in advertising revenues and stable EBITDA margin for the year. As a result, we anticipate that, if the group does not pursue meaningful mergers and acquisitions (M&A) or shareholder returns, adjusted leverage will remain below 2.0x over the next 12 months. This includes £250 million of what we consider to be excess cash.”

However, there is also a caution in the agency’s note: “We currently view ITV’s lack of a publicly stated financial policy as not particularly supportive of an investment-grade rating at this stage. We believe, however, that the next 12 months should grant us greater visibility about the sustainability of ITV’s current capital structure, which we view as strong for the current ratings. “

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