Analyst Calls ITV Top Stock Pick, Cites Improved Ad Trends, World Cup

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"Suggestions that advertising momentum is improving around the World Cup should help" investor sentiment, says Liberum's Ian Whittaker.

LONDON – Ahead of the start of the soccer World Cup in Brazil on Thursday, Liberum Capital analyst Ian Whittaker reiterated the stock of U.K. TV networks giant ITV as his top pick in media.

"While we like it for long-term, fundamental reasons, shorter-term advertising trends also provide a catalyst," he wrote in a report. "In this context, the suggestions that advertising momentum is improving around the World Cup should help."

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Saying that June advertising "looks to be doing better than expected" by the company, Whittaker reiterated his "buy" rating and $4.29 (2.55 pounds) price target on the stock.

"Media-buyer feedback suggests that ITV1 (more than 75 percent of ITV's total ad revenues) is seeing June TV advertising revenues up 24 percent year-over-year, which is much stronger than ITV's guidance of 15 percent to 20 percent for June as a whole," he said. "While we recognize that ITV's guidance is for the family [of all its networks] as a whole, ITV2 and ITV4 may also be helped by some World Cup related programming and advertising."

Concluded Whittaker: "The crucial point is that momentum seems to be building and is better than when ITV provide their original guidance" last month.

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Comparing ITV's ad trends to the last World Cup, the analyst said "this looks like a rerun of 2010," namely "late money coming in and inflating the market more than the original guidance." In 2010, ITV originally guided to second-quarter ad revenue being up 22 percent before recording a 28 percent gain. 

Whittaker said this should encourage investors amid a recent lack of upward momentum in ITV's stock. "The shares have flatlined recently after what was perceived as a "disappointing" first quarter due to the lack of upgrades," he wrote. "However, the ITV story still very much holds, [meaning] it is in a fundamentally strong position, with changes to the U.K. TV landscape (potential for retransmission revenues, changes to the BBC charter etc) likely to benefit ITV significantly."

Plus, its cash position offers flexibility for cash returns and/or selective acquisitions, Whittaker said.

ITV's stock was up 2.5 percent in early Thursday trading.

Twitter: @georgszalai