Friday 17 May 2019 10:33 amInteractive Investor Talk

Even ITV's big dividend can't win over investors

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After falling again sharply on these first-quarter results, interactive investor's head of markets explains why ITV is finding life so hard.

Strategically, the song remains the same at ITV (LSE:ITV) as it continues to respond to changing viewer habits, while also lessening its reliance on traditional advertising.

Indeed, there are signs of progress on both fronts, with its share of viewing having risen 4% and online viewing via the ITV hub putting in another strong quarter with a 16% hike.

Meanwhile, revenues from ITV Studios also inched higher as the company positions itself to be able to provide prime content, with another set of popular programmes having recently hit the screens or in the pipeline. The year on year revenues for Studios is already comfortably ahead, and the launch of BritBox in the second half of the year should provide some clues as to the potential for this form of viewing in the UK.

In the meantime and from an investment perspective, the dividend yield of 6.1% is an obvious attraction to income-seekers.

At the same time, the revenues between Broadcast & Online and Studios are now broadly even as the company continues to reduce its dependence on advertising which as a cyclical income is certainly not guaranteed. Indeed, despite the resilience of the UK economy at present, advertisers have nonetheless been more reluctant to spend given the wider political uncertainty, and where the TV advertising budget is usually one of the first to be sacrificed.

Source: TradingView Past performance is not a guide to future performance

Within the numbers themselves, the scale of ITV's challenges are clear. The company had previously guided that the first half would be difficult on the advertising income front, not least of which due to some imminently strong comparatives after the boost of last year's Football World Cup.

The 2019 Rugby World Cup should lessen some of the blow, but there will be additional pressure on ITV to deliver a strong second half. Meanwhile, net debt has risen 6% in the quarter, with the pension deficit bearing the brunt and a difficult three months has resulted in a 4% dip in overall revenues.

In its quest to become more than a terrestrial broadcaster, ITV has entered a global arena where competition for viewership is both intense and evolving. The next stage in its progress is not yet obvious, whether that be as an independent entity or within another media concern, although such vague bid speculation has for the moment subsided.

As such, the share price remains under pressure, having dropped 13% over the last year, as compared to a 4% decline for the wider FTSE 100 index. Management's previous guidance may have cushioned some of the disappointment within this update, but the market consensus of the shares has also drifted lower of late, and now comes in at a 'hold', albeit a strong one.

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