The price is not right for ITV

INVESTMENT COLUMN

In the mad world of television, there is, it seems, no such thing as excess. Judging by the astronomical prices that ITV companies are fetching, there seems to be little logical connection between fundamental performance and stock market ratings. Yorkshire-Tyne Tees, the widely tipped takeover candidate, is trading at a mind-boggling 60 times historic earnings, while HTV, the licence holder for Wales and the West, is on 40 times. Even tiny Ulster TV manages a price/earnings ratio of 25.

There was a time last year when the whole ITV sector looked relatively cheap. Expectations of a consolidation, following changes in cross-media ownership rules, had not yet found their way into prices, while the prospect of a renegotiation of the high licence payments made to the Treasury was judged by short-termists as being too far off.

Since then, both issues have been taken on board by the market. Indeed, with Yorkshire Tyne-Tees trading at above pounds 10 a share, investors - and any potential bidder - have to be absolutely convinced that the pounds 55m licence payment will come down considerably.

Renegotiated licences are only part of the story. The ITV sector is also going to see the money it gets from Channel 4 under the infamous "safety net" funding formula decline, now that the Government has been convinced the current system is unfair to Channel 4. Analysts expect lower licence fees will more than offset losses from the levy but there is still some doubt on this.

Longer term, the advertising revenues earned by Channel 3 companies are bound to be affected by the arrival of Channel 5. Later still, the introduction of digital terrestrial television will further fragment the market.

In coming weeks, it is takeover speculation that will drive the sector. YTT shares are unlikely to retreat much unless Granada, the likely bidder, decides to back away. HTV will remain in the frame for as long as Carlton's Michael Green keeps his options open. Scottish will benefit from Mirror Group's unquestioned interest.

But with such froth in the market, it is difficult to focus on the underlying performance. HTV looks like an earnings winner, as one of the few ITV companies to successfully market its programming to the cable and satellite industry. Likewise, Scottish is viewed as being well managed, and has lagged other ITV shares in the recent spate of speculative buying.

Of the bigger companies, YTT cannot go much higher. Carlton and Granada are far more likely predators than bid candidates, and investors will have to judge whether paying over-the-odds for other ITV companies can be warranted at these prices.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas