ITV reducing its dependence on ads

While the focus at ITV is typically on net advertising revenues (NAR), the broadcaster's programme making unit, ITV Studios, is becoming increasingly significant.

Revenues at ITV Broadcasting & Online edged up a mere 1% to £440m in the first three months of 2012 from £436m the year before, but ITV Studios' performance had a lot more pep, with its revenues surging 61% to £212m from £132m.

The increase in ITV Studios' revenue reflected the front-loaded delivery of a number of shows, as well as the inclusion of ITV Breakfast production revenues now that Daybreak is produced by ITV Studios. The division did well both in the UK and internationally, with the US chipping in with a fair number of commissions, and the unit is on track to grow revenues this year at a similar rate to 2011.

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ITV's core TV channels, what it terms ITV Family, saw their combined market share ease by a couple of percentage points in the first four months of the year, but with the European 2012 football championship coming up, the company is confident it will regain share.

ITV Family's NAR was down 1% in the first quarter to £362m from £365m the year before, but with the aforementioned Euro 2012 coming up the group is expecting things to pick up in the second quarter, and anticipates NAR in the first half of the year will be up 3% on the first half of 2011.

That guidance is well below the 6% growth Credit Suisse had been expecting after taking soundings from its network of media buyers but, on the other hand, the 1% first quarter decline was not as bad as the 2% fall Credit Suisse had been anticipating.

Richard Nunn at Charles Stanley noted: "NAR for ITV Family was -1% for Q1 [first quarter] and broadly flat for April. The outlook is for +6% in May, and between 12%-17% for June driven by Euro 2012 championship football, resulting in +3% for H1 [first half], marginally below expectations."

Non-NAR revenue rose 43% to £290m from £203m the year before which means that, after stripping out inter-departmental transfers, total external revenue rose 13% to £565m from £500m in the first quarter of last year.

"We continue to push forward with our five year Transformation Plan with external revenues up 13% in the first quarter of the year - driven by an increase in non-advertising revenues - in line with our strategy of rebalancing and growing the business," said Adam Crozier, ITV's Chief Executive.

Richard Nunn at Charles Stanley implies the jury is still out on how quickly ITV can reduce its reliance on advertising revenues.

"There are concerns about how quickly ITV can diversify in generating 50% of revenues from non-ITV1 advertising by 2013. This looks evenly balanced with the lack of momentum for ITV.com although ITV Studios is now back to growth," Nunn notes.

"Currently TV advertising revenue generates 85%, and with the Olympic effect and the Euros this year this ratio is unlikely to change in the short-term," Nunn reckons.

Nevertheless, Charles Stanley reckons the shares "still look reasonable value" on a price/earnings ratio of 9.7 times projected earnings per share (EPS) for 2012 and 9.2 times forecast EPS for 2013.

The shares rose briskly in the first hour of trading, hitting 85.4p before easing back a little. The shares closed at 80.75p the day before the trading update was released.

JH