Advanced Television

Bank downgrades ITV

April 20, 2022

By Chris Forrester

A report from equity analysts at investment bank Berenberg has downgraded its advice to clients to ‘Sell’ shares in the UK commercial broadcaster.

The bank believes the market’s consensus estimates for ITV are too optimistic.

“While forecasts have fallen following the announcement of additional investment in ITVX, consensus still expects modest growth in advertising revenue in 2023, despite the fact that there is no major international football tournament next year, high fat sugar and salt (HFSS) advertising restrictions are due to come into force and we expect advertisers to continue shifting out of linear TV, which remains the vast bulk of ITV’s advertising revenue,” says Berenberg.

The report also says that it fears “significant media cost inflation” hurting ITV, noting: “As we have highlighted in the past, we think the sharp rise in the cost of ITV advertising – a function of growth in ad-spend coupled with a decline in viewing time – will affect advertiser demand. Indeed, the cost of advertising per minute of viewing was up by over 40 percent in Q4/2021, on both a one- and two-year stack. While advertisers may tolerate some cost inflation, we think such an increase negates the argument for TV as a good-value way to build reach. In an environment where other input costs are increasing at above-average rates, such a steep increase will likely render TV advertising a source of cost cuts; indeed, we are starting to hear murmurings from media buyers about disquiet in the advertiser community in this regard.”

The bank also cites the general state of the UK economy as not helping with declining disposal income and the likely impact on consumer confidence.

“While we recognise that 2022 will be supported by the recovery in certain categories (eg travel), we think budgets are increasingly at risk of being cut by advertisers as they begin to suffer the impact of rising inflationary inputs and lower demand from consumers. While Q1 was strong, and April should benefit from the late Easter, we believe there are real risks of a shift in advertiser sentiment,” states Berenberg.

The ‘Sell’ downgrade is accompanied by a share price target of 64p per share (currently about 77p).

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