The risk-reward ratio for ITV PLC (LON:ITV) looks ‘less compelling’ in the light of weakening advertising spend.
That at least is the opinion of City heavyweight JP Morgan Cazenove, which downgraded its rating for the stock on Friday.
It went to ‘neutral’ from ‘overweight’ on the broadcaster following discussions with media buyers.
It values the shares, currently trading down 1% at 214p, at 233p each.
JPMorgan acknowledged that the shift towards content (now 33% of group revenues) has lessened ITV’s reliance of advertising. Nevertheless, it is still a major share price driver, it adds.
“Our latest discussions with media buyers indicate that UK advertising trends appear to have slightly worsened versus previous estimates – in particular in tetail advertising (with a 20% share ITV’s largest category),” the Anglo-US brokerage said.
Worsening trends ...
It expects ITV's net advertising revenue to decline 4.5% in the current year, compared with a 3% fall it had pencilled in before carrying out its market research, which means a knock-on 3% cut to earnings forecasts.
“At this stage, we no longer see risk-reward as compelling anymore and hence downgrade,” JPMorgan said.
It pointed out that following the recent bid supported rise in the share price, ITV is valued on a fairly full 13.6 times forward earnings.
Of the 18 analysts logged by the Brokerforecasts site as following ITV, eight have ‘buy’ recommendations while the there’s only one ‘seller’. The remainder agree with JPMorgan that ITV shares are fully valued.
The consensus share price target, which was 240p six months ago, has been pegged back 223p, reflecting the City’s caution over the maker of Doc Martin, Broadchurch and Prime Suspect’s fortunes.