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U.K.'s ITV: Analysts Split on Stock After All-Time High

International TV: What's Driving the Buying Spree
ITV CEO Adam Crozier

"Retransmission and other high-margin revenue sources are growing," which should boost the stock just like in the case of such U.S. peers as CBS Corp., says one observer.

LONDON – The stock of U.K. TV giant ITV has recently set all-time highs, causing analysts to debate its outlook.

The stock recently set a 52-week and all-time high of $2.96 (1.862 pounds).

Liberum Capital analyst Ian Whittaker on Tuesday reiterated his "buy" rating on the stock, boosted his earnings forecasts for the company, which airs such hits as The X Factor and Downton Abbey, and upped his price target on the stock, predicting 26 percent upside.

"ITV’s adjusted price-earnings [ratio]...is at the low end of what you’d expect from an advertising recovery," he said in a report. "But retransmission and other high-margin revenue sources are growing, and we think it should re-rate as its U.S. peers, such as CBS Corp., have done."

He raised his price target from $3.18 (2 pounds) to $3.66 (2.30 pounds).

Whittaker called retransmission revenue "the next big opportunity" for ITV. "The recent CBS-Time Warner [Cable] dispute over retransmission fees in the United States – which CBS effectively won – highlighted the growing shift in power from distributors to content owners. This has hardly started in the U.K., but represents a big opportunity."

In a previous report, he had mentioned the potential uplift of up to $159 million (£100 million) of high-margin revenue from future retransmission opportunities. He said that could amount to 15 percent upside to his earnings forecasts.

Whittaker on Tuesday also cited an "improved outlook on TV advertising" for ITV. "Our feedback from media buyers suggest September is up 5 percent for the ITV [channel] family, with initial indications of 5 percent for the fourth quarter, driven by both a general advertising environment and sector-specific spending," he said.

Last week, Sanford C. Bernstein analyst Claudio Aspesi had taken a different approach to ITV's stock outlook, downgrading his rating to "market-perform," which is similar to other analysts' "neutral" rating.

"Despite strong fundamentals, we do not see significant upside from here," he wrote. "We find that net advertising revenue growth in excess of 7 percent would be necessary to generate share price upside of circa 15 percent and an "outperform" rating."

Other analysts have lauded the company's growth in non-ad revenue. CEO Adam Crozier and his team have particularly boosted ITV's TV production business via acquisitions in the U.S. and elsewhere.

In mid-day Tuesday trading in London, ITV's stock was up slightly at 1.82 pounds, giving the company a market value of $11.43 billion (7.18 billion pounds).

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai