ITV 'X Factor' U.K. Ratings Concerns "Overdone," Analyst Says

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'X Factor' creator and judge Simon Cowell

The British TV giant's stock has dropped more than 10 percent in recent weeks amid worries about the talent show's audience and TV advertising, says Liberum's Ian Whittaker.

U.K. TV giant ITV’s stock price has fallen 13 percent since the beginning of August "on a mixture of concerns, including general macro conditions, the structural position of TV advertising and the performance of The X Factor," Liberum Capital analyst Ian Whittaker said in a research report on Monday.

"We see the concerns as overdone and would use the current weakness to buy into a company that is likely to see significant consensus upgrades and where there could be several positive pieces of newsflow over the next several months," he said. Whittaker reiterated his "buy" rating on the stock and $5.03 (3.30 pounds) target price, saying investors should "‎take advantage of the weakness."

The B‎BC's Strictly Come Dancing beat Simon Cowell's X Factor in the ratings on Saturday night with an average audience of 8.7 million to 7.5 million, "exacerbating concerns over the X Factor," the analyst wrote. "Yet we think concerns over the X Factor are overdone: while ITV does not split out X Factor revenues, we estimate it is unlikely to contribute much more than 3 percent of full-year advertising revenues (and is also likely to come with a high cost attached)."

Whittaker concluded that big soap operas are financially more key to ITV. "Put simply, Coronation Street and Emmerdale are far more important for ITV," he said.

And he added: "It will also be interesting to see whether ITV would consider taking The Voice, which it now owns via its Talpa acquisition, in-house onto ITV1, if it does feel the X Factor franchise is coming to an end." The Voice U.K. currently airs on the BBC.

Whittaker also mentioned a current government push to reduce the scope and size of the BBC's activities.‎ Saying that this "increases the chances the government will look to make more radical changes at the BBC and force it to focus less on chasing mass audiences," the analyst concluded that "this would help ITV from an audience share perspective."

Overall, Whittaker said he continues to see ITV's stock as his "top buy" in the sector.‎

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