Market Report: ITV at record low as advertising fears grow
Tuesday 24 February 2009
ITV retreated to another record low last night after analysts expressed caution about the broadcaster’s prospects as tougher trading conditions persist.
Deutsche Bank and Cazenove analysts said ITV was likely to cut its dividend next month as it tries to conserve cash in the face of further falls in advertising revenues.
Deutsche added that while the company’s liquidity position was reasonable at present, “it could get a lot tighter if a covenant is breached, which further downgrades to [advertising] revenues would make more likely”. The broker said: “ITV has a relatively high debt burden and the pension exposures are large relative to the market capitalisation.”
The assessments, which were supplemented by recent press reports that suggested the broadcaster was planning to launch a £300m rights issue when its posts results on 4 March, sent the stock down by just over 4 per cent, or 1p, to 23.5p, its lowest level since the Granada-Carlton merger in 2004.
Overall, the FTSE 100 was lodged below the 4,000-point mark, losing 38.33 points to 3,850.73, while the FTSE 250 closed below 6,000 for the first time since early December, losing 89.48 points to 5,919.34. Although strong in the morning, the market gave way after early losses on Wall Street.
The banking sector traded higher after authorities in the United States signalled their willingness to raise their stake in Citigroup. Traders said the move, although likely to dilute the holding of current equity investors, was better than full nationalisation, which would wipe out the interests of ordinary shareholders. New funds would also avoid a possible collapse of what is one of the world’s largest banks, they added.
There was also some news in UK financials, with reports indicating that Royal Bank of Scotland – up almost 10 per cent, or 1.9p, at 21.2p – was set to spin off unwanted assets into a so-called “bad bank”. Details of the restructuring plan are expected with the bank’s full-year results, which are due on Thursday.
Although investors appeared hopeful that RBS could cordon off its toxic assets and concentrate on rebuilding its battered balance sheet, some analysts remained worried, with Société Générale saying that a weak outlook statement may “heighten concerns about the bank’s ability to continue to operate as a private sector player”.
“We believe that concerns over potential future downward pressure on the group’s capital ratios from legacy assets will outweigh any positive message that emerges from the unveiling of further details related to the group’s new strategic roadmap,” the broker said, reiterating its “sell” rating and 5p target price on the stock.
Elsewhere, Legal & General, which has endured some heavy selling in recent sessions, recovered to 36.6p, up just over 5 per cent or 1.8p, as bargain hunters piled in. Some market watchers characterised the move as a “dead cat bounce” – Stock Exchange parlance for a temporary rebound which was prone to fizzle out in forthcoming sessions.
3i was the weakest of the blue chips, losing 15.5p, or more than 7 per cent of its value, to 202.2p after the ratings agency Standard & Poor’s lowered its long-term counterparty credit rating for the private equity group to BBB+ from A-.
Ashmore, the mid-cap investment manger, was the hardest hit on the FTSE 250, falling by almost 14 per cent, or 16.2p, to 100.7p in advance of its interim results, which are due today.
Brixton was also unsettled. The real estate investment trust (Reit) was down 7.3 per cent, or 3p, at 38p after Goldman Sachs reduced its target price for the stock from 103p to 49p. Goldman also weighed in on Segro, which was 0.7p behind at 91.7p after the broker reduced its target from 190p to 120p.
“Our estimates now assume [that a] covenant renegotiation occurs; we believe this now more likely than not in the absence of rights issues or asset sales, given the strained environment the Reits find themselves in,” Goldman said.
The broker was more positive on the waste manager Shanks, which firmed 1.5p to 59.5p. Adding the stock to its “conviction buy” list, Goldman said a successful refinancing of the company’s debt and the possibility of deal activity in the wider sector could offer some near-term support to the share price.
The video games retailer Game was 3.7p stronger at 140p after Altium Securities switched its stance on the stock to “hold” from “sell”, citing recent share price falls.
Johnston Press, more than 4 per cent, or 0.2p, ahead at 6.2p, received a shot in the arm from Singer Capital Markets, which issued a “buy” note on the stock, saying that, at current levels, the share price is likely to react positively to any plans that “indicate survival”. “With new management in place, a restructuring plan is almost certain and is the key catalyst,” the broker said. “Leverage cyclicals are not for the faint-hearted, but based on the potential upside, the risk/reward [profile] is highly attractive,” Singer added.
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