UBS Analyst Cheers ITV Turnaround Despite Record BBC Ratings Lead

"Upside potential remains" from ITV Studios growth, cost cuts and potential ad recovery, says Tamsin Garrity.

LONDON - The Summer Olympics and the Queen's diamond jubilee have helped BBC1 to its biggest-ever ratings lead over ITV1 year-to-date, but an analyst on Friday said she remains bullish on British commercial broadcaster ITV.

BBC1's 21.9 percent audience share year- to-date is 7.2 points ahead of ITV1, the Guardian reported.

But UBS analyst Tamsin Garrity said in a Friday report that ITV management "has delivered on the turnaround, demonstrated by growth of [ITV] Studios, online, cost reduction and buying back debt to leave the company net cash and lower the risk."

She has a "buy" rating on ITV's stock and a 1.10 pounds ($1.75) price target.

Added Garrity: "Upside potential remains from Studios growth (organic and acquired), cost reduction, debt and equity buybacks and any ad recovery."

The company's recent focus on ITV Studios, which has agreed to acquire Graham Norton's So Television among other deals this year, has allowed ITV to become less reliant on advertising. "Thus far, the rejuvenation of talent and the alignment of goals with channel needs have led to Studios increasing its share of ITV1 original commissions, gains in international sales and strong growth in distribution," the UBS analyst said. "The division is likely to grow double digits this year and may expand further through acquisitions, driving upgrades."

But advertising remains a key driver of possible upside for ITV. "Advertising remains the largest driver of profit, and ITV appears on track to outperform the market in 2012," Garrity said. "ITV stated that advertising was flat to September. However, recent data reveals strengthening, and we forecast 0.5 percent [growth] in 2012, partially driven by our view that retail advertising will strengthen in the fourth quarter."

ITV's stock is up 24 percent year-to-date, but has more upside, she argued.

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