Investment Column: Advertising uncertainty weighs on ITV
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Thursday 18 August 2011
Our view: Hold
Share price: 58.95p (-0.9p)
It is not just Britain's teenagers who are waiting for the start of X Factor this weekend but the bosses at ITV as well. They will be rubbing their hands with glee at the return of one of the broadcaster's hottest properties.
While there will be no Simon Cowell, the show that brings guaranteed hit ratings will still be a welcome arrival after a rather poor run of form for the company's shows. It emerged this week that ITV1, the broadcaster's flagship channel, had even been beaten in Sunday's ratings by BBC2.
Happily for investors, the group's financials are rosier. The company announced at the end of July that it had boosted revenues by 4 per cent to just over £1bn in the first half of the year. The rise came despite the hit from a lack of revenues from the juicy advertising campaigns connected to the football World Cup in 2010.
The management team of chief executive Adam Crozier and chairman Archie Norman, who were brought in to transform the business last year, have managed to grow the business while also pushing ahead with a five-year transformation plan.
Along with the rise in revenues, the company said that it is on track to deliver £15m in cost savings, and had slashed its debts from £188m at the end of the year to £52m six months later, a move which has also reduced its interest costs.
The main focus of management has been shaking up the revenue model, which remains far too dependent on the ups and downs of the advertising market. There have been some sorties into new operations, such as putting channels onto pay-TV platforms and exploring a micropayment system for online content.
Still, as far as the rest of the year is concerned, the bosses are cautious about advertising, and another downturn would drag ITV down with the market. The stock itself looks relatively cheap, having fallen by nearly 37 per cent since hitting the recent peak of above 93p in early March. But, given the risks stemming from the advertising market in the near term, we would wait a while before buying.
Our view: Hold
Share price: 92.55p (-0.05p)
The recession was pretty bad for investors in the pubs sector. And although parts of business continue to face challenges, there are companies that are worth looking at for their resilience in the face of what remains an uncertain economic backdrop.
Marston's candidacy was confirmed by its trading update last month. The group said profitability in the first 42 weeks of its fiscal year had been in line with its expectations, and that its "performance has been encouraging and robust despite the difficult trading environment."
This is no mean feat. Adding to the attraction for us is the thin valuation. At under 10 times forward earnings for this year, and just nine times on the estimates for next year, Marston's looks affordable.
That's not all. Throw in the prospective dividend yield of 5.7 per cent, according to Altium, and it begins to look like a stock worth buying. Indeed, had it not been for the sluggish UK consumer environment, we would. But the sluggish state of the economy makes us pause for now.
Our view: Hold
Share price: 382.7p (-6.8p)
It may have laid the foundations for the Olympic Stadium in London, but Keller has been on shaky ground in 2011, losing around 40 per cent of its share price since the start of the year.
The slide was exacerbated by a major tumble in May after the engineer warned on profits, citing factors including the turmoil in the Middle East and North Africa, as well as the flooding in Australia.
Despite revealing its first-half pretax profit had fallen 70 per cent, its interim results at the start of the month did provide some encouragement, however, as it predicted the rest of the year would be much more positive. Yesterday's announcement that Keller had won two major tunnelling contracts for Crossrail appears to back up that optimism, at least partly, with the deals worth roughly £30m.
This is a good sign, and certainly adds credibility to the company's claims. However, even though the recent performance of its share price leaves plenty of room for upside gains, we think the market will need more encouragement before the stock makes a meaningful recovery. Until then, we would keep holding.
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