The Investment Column: Storm clouds on the horizon for ITV

Braemar Seascope is on the crest of a wave - Prospects in the US make Alterian worth keeping
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While ITV has been having a jolly old time thanks to the regulators, who continue to bestow huge benefits to the commercial broadcaster, a huge pitfall lurks in the background.

While ITV has been having a jolly old time thanks to the regulators, who continue to bestow huge benefits to the commercial broadcaster, a huge pitfall lurks in the background.

The danger is the growth of a device called a personal video recorder or PVR. ITV is funded by advertising. A PVR allows viewers to fast forward the ads altogether. With fewer eyeballs looking at the latest soap powder or margarine promotion, surely advertisers will start to look for other ways to get their messages to consumers?

Investors are starting to become worried about the impact of PVRs. ITV shares closed down more than 3 per cent yesterday, the worst FTSE 100 performance, on the back of a research note from the heavyweight broker Merrill Lynch pointing out that ITV is easily the most at risk, accounting for half the television ad market.

The shares are down by a third since the merger of Carlton and Granada (the deal that created ITV plc) in January.

PVRs are far from being the only storm cloud on the horizon for ITV. The long-term trends were going against the broadcaster anyway, before PVRs came along. ITV has been losing audiences at a pretty alarming rate for the past 20 years as new terrestrial broadcasters (Channel 4, more recently five) have come on the scene and multi-channel television arrived from cable, satellite and now digital terrestrial.

From being one of three channels in a British household two decades ago (and the only commercial station), ITV now finds itself as one of 30 or maybe 300 stations. And Sky has aggressive targets to push its PVRs, which it aims to have in 2.5 million homes by 2010. It is anyone's guess how much PVRs will be used, but Merrill Lynch believes it will mean 36 per cent of ads will be skipped.

ITV will continue to grow profits sharply over the next few years, from a short-term ad recovery and the much easier regulatory environment it has skilfully negotiated. There will also be disposals of non-core businesses that might trigger returns of cash to shareholders.

The big picture, though, is that revenue growth will be much harder. Given the accumulating negatives, long-term investors should avoid putting ITV into their share portfolios.

Braemar Seascope is on the crest of a wave

If investors in Braemar Seascope can keep their heads when all about are losing theirs and blaming it on the stalling economic recovery, then they ought to make a pretty decent return on their investment.

Braemar is a shipping broker, responsible for arranging cargo and container ships for customers who need to haul raw materials and manufactured goods around the world. Its "reverse profit warning" yesterday was a useful reminder that, despite stock market fears that a rising oil price could tip the economy back into the doldrums, trading across a wide range of industries is still buoyant. Braemar said that demand for ships was still so high that freight rates in the crude oil and bulk freight markets were rising again, and more shipping firms were buying additional vessels.

So profits for the year to February are already certain to exceed market forecasts, it said.

This is about more than just China's insatiable demand for raw materials. It is also about the outsourcing of manufacturing that has gathered pace since the global recession. This will support shipping rates at high, if not record, levels, while advisory work on new shipbuilding contracts has bolstered Braemar's long-term order book. The shares were 262.5p when we tipped them in May. At 329p, with a 4 per cent dividend, keep buying.

Prospects in the US make Alterian worth keeping

Disappointing yesterday to see the latest figures from Alterian, the technology company whose software helps marketing departments come up with better customer offers. The BBC, Vodafone and Royal & SunAlliance are among the users of its products.

It might seem cruel to quibble when revenues in the three months to 30 September were up 43 per cent on the same quarter last year, but that £1.46m figure was shy of forecasts and means we are expecting slightly less of this company this year. Alterian is still on course for "earnings neutrality" for the 12 months ending in March, but we can't expect much more than break-even now.

It jacks up the risks slightly to this share, which we have twice tipped this year. About 40 per cent of sales are made in the final three months of the financial year so the most worrying part might be that Alterian has cut its marketing budget to ensure the earnings target is well met. But existing shareholders should look through the new uncertainty; the company has an impressive product which is getting a foothold in the US market now, too.

At 90.5p, hold.