Picture supply: Getty Photos
FTSE 250 terrestrial and digital media big ITV (LSE: ITV) is down 15% from its 25 July one-year traded excessive of 88p. This might imply it’s a cut price now. Or it could be that the agency is basically price lower than it was earlier than.
To seek out out which it’s, I took a deep dive into the enterprise and ran the important thing numbers.
Enterprise fundamentals
Earnings progress is what powers any agency’s inventory worth and dividends over time. In ITV’s case, analysts forecast its earnings will develop by a mean of 8.6% a yr to end-2027.
A danger to that is the cut-throat competitors within the sector from home and worldwide operators alike.
Nevertheless, its latest outcomes have regarded stable to good to me. Full-year 2024 numbers confirmed adjusted earnings earlier than curiosity, taxes, depreciation, and amortisation rose 11% yr on yr to £542m. Adjusted earnings per share jumped 23% to 9.6p.
In the meantime, internet debt dropped 22% to £431m, and statutory working revenue soared 34% to £318m.
Share valuation
A share’s worth and its worth usually are not the identical factor, after all. The previous is regardless of the market can pay at any given time. The latter displays the true price of the underlying enterprise fundamentals.
Over time, a inventory’s worth will converge with its true worth, in my expertise. This includes a number of years as a senior funding financial institution dealer, and a long time as a personal investor.
I’ve additionally discovered that the optimum technique to verify any share’s true worth is the discounted money movement mannequin. This pinpoints the worth at which any inventory ought to commerce, primarily based on money movement forecasts for the underlying enterprise.
For ITV, it exhibits the shares are 70% undervalued at their present 75p worth. This implies their honest worth is £2.50.
Comparisons of key inventory measures with its rivals present additional secondary confirmations of this undervaluation.
For instance, on the important thing price-to-sales ratio, ITV’s 0.8 is backside of its peer group, which averages 1.1. This includes RTL Group at 0.9, MFE-Mediaforeurope (1), Métropole Télévision (1.2), and Atresmedia Corporación de Medios de Comunicación (1.4).
Passive revenue flows
Final yr, ITV paid a complete dividend of 5p, giving a yield of 6.7%. That is practically double the FTSE 250’s present common of three.5%.
Analysts forecast the dividend yield will stay the identical till the tip of 2027 at minimal.
So traders contemplating a £5,000 holding in ITV would make £19,012 in dividends after 10 years. This consists of reinvesting the dividends again into the inventory over the interval – often called dividend compounding.
On the identical foundation over 30 years, this could rise to £128,434. At that time, the worth of the complete holding could be £148,434 (together with the preliminary £20,000 funding). And that will pay a yearly dividend revenue of £9,945 by that stage.
My funding view
After turning 50 some time again, I diminished the general danger profile of my portfolio. It is because I’m much less keen to attend for shares – or markets – to get well from any shocks.
For my part, a sub-£1 worth for a inventory provides further worth volatility to the chance matrix. That mentioned, given ITV’s robust earnings progress prospects, I believe it nicely definitely worth the consideration of different traders whose portfolios it’d nicely go well with.
