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ITV - a rather dull strategic update...but that's no bad thing

By Chris Bailey | Wednesday 25 July 2018

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

So after over six months of musing, the day has finally arrived. A strategic update from ITV (ITV), put together by newish CEO Carolyn McCall is, in summary, not really that radical or exciting. However I am perfectly happy with this and - as discussed at the time of my last write-up on the stock HERE - I think all this does is further embed the rationale for Liberty Media to buy this UK media name.

But enough of the takeover chat because we all know such predictions are no more than educated guesses. Whilst you wait for this to happen or not the good news - and the reason why you should be holding/buying ITV stock - is that the share remains good value and the strategic direction sensible.

Let's start with today's numbers. Yes earnings/EPS down 7-8% does not look great but the comment (and prior guidance) about 'World Cup phasing' I think was fairly well-known and the second half numbers will get a bump from England's alright exploits at the tournament (even if they failed to win any of the ITV screened matches in normal time). Otherwise you cannot argue with the 11% organic rise at ITV Studios nor the edging up of the company's overall dividend or good cash conversion/maintenance of the net debt:ebitda ratio.

Even the overall advertising market is positive ('total advertising is expected to be up 1% in the 9 months to 30 September'). Thanks World Cup (again!). Put it all together, as a standalone set of numbers, I would still conclude that ITV should be a 2 quid plus stock. Even the dividend munchers will like that 8p divi (smell that 4.7% yield!) commitment for this and next year.

But we all know that the media world is not standing still. That's where Carolyn McCall's strategic review kicks in. And pacing through it all...I have to is exactly what I would have suggested. More online/Studios/direct-to-consumer focus and an acknowledgement that the TV world is changing. Or as it was put today: 'ITV’s Vision is to be…More than TV...A future facing, modern and digital brand that is relevant to all viewers and brands...A sustainable, cash generative and growing business delivering for our shareholders'.

Well I agree on all that...although I am slightly unclear how it took six months to get to this point. Still shareholders can judge progress through communicated targets such as on the ITV Hub (its iPlayer equivalent) to increase registered users from 25 million to 30 million and deliver double digit online revenue growth per annum over the next 3 years, or Studios to grow more than 5% per annum whilst boosting margins. Better is the chat about delivering £35-40 million of cost savings over the next 3 years and keeping up cash conversion.

Pull it all together...all very sensible stuff. Now over to you Liberty Media. All that Vodafone cash from buying out some of your European telecoms operations maybe can be put to some good use.

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