ITV higher as Liberum Capital suggests STV deal with Sky pointer to retransmission fee agreement

Liberum's analysts said they believe such a deal between ITV and Sky would lead to a material – around 15% plus - uplift to the FTSE 100-listed broadcasters' consensus earnings

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Liberum repeated a ‘buy’ rating and 260p price target on ITV shares, with the stock currently trading at 133.30p each, up 5.8%

ITV PLC (LON:ITV) found gains on Tuesday after Liberum Capital suggested that a five-year partnership signed on Monday by STV Group PLC (LON:STV) with Sky is a pointer to a deal between the satellite TV firm and the bigger commercial broadcaster on retransmission fees.

In a note to clients, the City broker’s analysts said they believe such a deal would lead to a material – around 15% plus -  uplift to ITV’s consensus earnings.

READ: ITV weak as it expects softening in fourth quarter advertising, although nine-month performance in line

They pointed out that deal between STV, which owns the licence for the ITV1 channel for most of Scotland, and Sky covers STV’s Video on Demand (VOD) services as well as regional advertising, and looks broadly similar to that which STV signed with Virgin Media in 2018.

The analysts said, in effect, the STV-Sky deal is a retransmission deal but added that it is complicated as Sky (and Virgin Media) have been adamant they would not pay retransmission fees for the ITV1 channel and STV does not have the minor ITV channels that ITV plc has.

They noted that the Sky agreement – like the deal STV signed with Virgin Media – has been worded with no explicit reference for fees for ITV1 but with an implicit recognition, it is included.

Noting that ITV’s retransmission deal with Sky is due to expire this year, the Liberum analysts said: “Sky’s signing of an agreement with STV suggests (1) Sky is willing to sign a deal and on broadly the same lines as the Virgin deal and (2) Sky appears to be keen to be resolve its outstanding deals sooner rather than later.”

Channel checks not too bad

Separately, the analysts said, their channel checks suggest ITV1’s national TV advertising performance for 2019 has not started too badly. In January 2018 ITV’s TV advertising performance fell by 3%

Liberum repeated a ‘buy’ rating and 260p price target on ITV shares, with the stock currently trading at 133.30p each, up 5.8%.

The analysts noted that ITV’s current share price more than factors in a downturn.

They concluded: “If we put a 10% reduction in TV advertising revenues into 2019 forecasts – to put in context, 2009 saw a 8.3% decline – and did not factor in any cost savings then ITV would still be trading at just over 10x adjusted FY19E, suggesting its current de-rating has gone too far.”

Quick facts: ITV PLC

Price: 88.2 GBX

Market: LSE
Market Cap: £3.55 billion

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