ITV share price: reasons to be bullish 

Perhaps the biggest reason for me to remain bullish on ITV is that revenue should rebound over the rest of 2021. Encouragingly, this month’s full-year report included mention of “more positive trends in the advertising market in March and April“. Most of its programmes are also back in production. 

Should all go as planned, I can see ITV restarting dividends. This should be a further catalyst for the shares to keep climbing as income investors pile back in. Additional gains could come from the company re-entering the FTSE 100 only a few months after being forced out. Funds tracking the index will be forced to buy the stock whether they like it or not.  

Another opportunity?

ITV isn’t the only value play out there. Industry peer STV Group (LSE: STVG) could also benefit from an ongoing reversal in sentiment. The shares are already up nearly 70% since the end of August. 

Earlier this month, the small-cap said it had achieved a “better than expected” performance in 2020, even though revenue and pre-tax profits were significantly down on the year. On a more positive note, it said online viewing rose 68% over the period. In other news, STV Studios won a record 19 new commissions in 2020 and net debt, excluding lease liabilities, fell 53% to £17.5m. In addition to all this, its also confirmed that it would reinstate dividends.

The most important snippet for me, however, was that advertising trends were “improving materially” in 2021.

Reasons to be cautious

Although bullish on the ITV share price and STVG’s prospects for the rest of 2021, I’m conscious that owning shares in the former may be skewing my opinion. So, let’s look at a few arguments for why things might not go as I think.

One clear objection to continuing to hold either stock now is that people can’t wait to leave their sofas and venture back out. As such, viewing numbers could drop over the remainder of 2021, especially if we get decent summer weather.

Of course, a third wave of the coronavirus would be bad news too and may halt productions again. A related concern comes from the possibility that overseas travel may still be prohibited. If so, travel companies and airlines will be unwilling to spend on advertising. 

On top of this, the competition for viewers won’t get any easier for ITV. Yes, its Britbox service has been well received, but the number of subscriptions pales in comparison to US giants like Netflix and Disney. As mentioned last month, I’m a big fan of the latter.

Solid hold

I’m happy to continue holding my ITV shares. A forecast P/E ratio of 12 takes into account the above concerns, in my view. Meanwhile, STV trades on an even more attractive valuation of 10.5 times projected FY21 earnings. I’d buy with any spare cash.

As long as COVID-19 is eventually sent packing, I’m hopeful investors like me will be rewarded for not selling either too soon.

The post Why I think the ITV share price is only getting started appeared first on The Twelfth Magpie.

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Paul Summers owns shares of ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Flight to safety

A lot of investors’ cash has been moved to shares considered safe, boosting Unilever (LSE: ULVR) — since the eve of the vote, the price is up 11.5% to 3,609p. It puts the shares on a forward P/E of 24.5, and that’s pretty high compared to the long-term FTSE average of around 14. And with dividends set to yield only 2.8% this year I can’t help wondering if risk-averse investors are overpaying now, especially as the company warned just before the event that “Unilever in the UK […] would be negatively impacted if the UK were to leave the European Union“.

At least there’s a decent year forecast for 2016, and we should have H1 results on 21 July. For Q1 we saw a 4.7% rise in underlying sales growth, including an 8.3% increase in emerging markets, with chief executive Paul Polman predicting “another year of volume-driven growth ahead of our markets, steady improvement in core operating margin and strong cash flow“. That really is the kind of thing that safety-conscious investors want.

Analysts have upped their revenue and earnings predictions in the last week, but that’s largely down to the falling value of the Pound boosting overseas earnings in Sterling terms. While Unliever investors are likely to avoid volatility, I don’t see great returns at today’s price.

Top telly

Shares in ITV (LSE: ITV) took a tumble too, dropping 30% from referendum day to 27 June, but since then they’re back to 176p for an overall fall of 20%, amid fears that ad revenue will fall as UK companies face squeezes in the months ahead. In a little less than 12 months, the once-popular ITV shares have lost 36% of their value.

Earnings forecasts for this year and next have been scaled back, but the price fall still leaves the shares on a price-to-earnings multiple of 10.5 for this year, dropping to under 10 next. Those will be based on a consensus that’s now a little out of date, but even with a modest downgrade that could still look cheap.

ITV’s first half figures should be with us on 27 July, and investors will be looking for them to build on a 14% rise in revenue in Q1 when the company predicted “good group profit growth” for the half. The figures won’t include any Brexit impact yet, but any thoughts from ITV on the resulting outlook for the rest of the year will be crucial.

Banker bashing

The banks were among the hardest hit by the vote, with Lloyds (LSE: LLOY) shares down 27% to 53p since 23 June. Lloyds should be revealing halfway figures on 28 July and I can picture its bosses tearing up their prepared outlook section and rushing to put together a replacement now we’re heading for the EU exit door.

Now that Lloyds, and other UK’s banks, faces massive uncertainty over the future of its membership of the EU passport scheme for banking services, the falling shares are understandable, but is it fair?

The shares are on a forward P/E of only a little over seven, and this year’s forecast dividend yield is up to 7.2%. That looks a strong contrarian buy to me, unless the market’s worst fears do come to pass — and worst fears usually don’t.

The post 3 dates for your July investing diary (Unilever plc, ITV plc and Lloyds Banking Group plc) appeared first on The Twelfth Magpie.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended ITV. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The telecoms and broadcasting sector has been turned up-side-down in the past decade by a series of sweeping strategic moves. BT Group is taking over Everything Everywhere, becoming the country’s leading broadband supplier and mobile business. It has also entered the pay-tv market, and now owns the rights to Champions League football.

Vodafone has been out-thought by its rivals

Sky (LSE: SKY) still dominates pay-tv in the UK, offering Hollywood movies and Premier League football to its customers, and it has expanded into broadband and now also has companies in Italy and Germany.

This has left Vodafone as the odd one out, seemingly out-thought by its rivals. Its Project Spring aimed to renew the telecoms giant, but it has been strategically out-manoeuvred, and its share price has been moribund for the past few years. There have been a few small purchases, and on and off discussions with Virgin Media owner Liberty Communications, but there has been no big, transformational deal.

So what could it do to make up some of this lost ground? Well, what if it bought Sky?

It would be the dream move, and in one fell swoop Vodafone would be one of the world’s leading pay-tv operators, as well as gaining a substantial broadband business. The company would be able to offer the triple and quad play deals that have gained so much business for its competitors. It would have renewed strength and greater synergies in Europe. And by building up its broadcasting assets it would take the fight to arch-rival BT.

Taking over Sky would be a transformational move

This would be the transformational move that its shareholders were hoping for. But could it ever happen?

Well, there would be several barriers to jump over. First, for a £56bn company to take over a £15bn firm, it would need to sell off some of its others assets, to make sure it doesn’t have too much debt.

Then the deal would require regulatory approval. But I don’t think this would be too difficult to acquire.

And, perhaps the most difficult thing, would be to gain the approval of Sky’s board. Although the synergies are clear, Vodafone may be forced to go hostile, increasing the price it would have to pay.

These difficulties probably explain why Vodafone has not yet launched a bid. It seems, instead, to have settled for a series of smaller deals, such as buying out minority shareholders in Vodafone India, and acquiring Spain’s leading cable operator, ONO.

But to me this seems like tinkering around the edges, and is unlikely to have a dramatic effect on the company’s bottom line. Instead, it may be a gamble, but I think Vodafone should try and change the whole game by acquiring Sky.

The post Should Vodafone Group plc buy Sky plc? appeared first on The Twelfth Magpie.

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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

It’s pretty hard to argue against ARM Holdings (LSE: ARM), the world-beating mobile computing chip specialist. The value of ARM shares has multiplied sevenfold in the past decade, to 1,004p as I write. The price has been flat over the past three years, but earnings have been growing nicely and the P/E rating of the shares has fallen to a more attractive level.

Forecasts for this year suggest a 43% rise in earnings per share (EPS), giving us  a P/E multiple of 29. At around twice the FTSE 100 average, that might seem high, but it’s the lowest it’s been in years and is good value for such a strong growth candidate. The other attraction with ARM is dividend that’s growing well ahead of inflation — by 25% in 2015, with a further 12% hike forecast for this year. Share price rises have kept the yield down, but at this rate you’d soon earn a decent yield on your purchase price if you bought today.

Back when I first started looking at ARM, I liked to point out that mobile computing was still in its infancy. Today, years later, it still is! City analysts have a strong buy consensus out for ARM, and they have my full agreement.

Buy on weakness

BAE Systems (LSE: BA) is very much a leader in its field, although tightened belts in aerospace and defence have squeezed earnings growth. According to forecasts, there should be no real change in earnings between 2013 and 2017. The share price has lost 5% over the past 12 months, to 504p, but over five years we’re still looking at a 51% rise that’s way ahead of the 3% the FTSE 100 has managed.

On top of that, BAE is paying dividends that easily beat the average, with shareholders having enjoyed a 4.2% yield in 2015 and with 4.3% on the cards for this year. The company has a policy of maintaining “long-term sustainable cover of around two times underlying earnings,” and we should hear more when interim results are released on 28 July.

Again, the brokers are pretty bullish about BAE, and so am I — for the long term, certainly, and that’s what counts for an ISA.

Top telly provider

I’ve suggested before that BT Group is my pick of the telecoms sector, but I’m impressed by the prospects for Sky (LSE: SKY) too, and when we think about the supply of TV content it’s still head and shoulders above its rivals. We’ve seen EPS flatten-off over the past couple of years, but there’s an 11% lift forecast for the year to June 2016. At the interim stage we heard of a 12% rise in underlying operating profit and a 10% rise in underlying EPS, so that forecast is probably not far off the mark.

On a forward P/E of around 16.5, Sky shares might not seem screamingly cheap. But with strong growth potential in the coming years and with a progressive dividend policy, I see good value for ISA investors here.

No time to lose

Anyway, whether you like these three or prefer others, make haste — for the current ISA allowance ends in just a week.

The post Do ARM Holdings plc, BAE Systems plc And SKY PLC Make A Great ISA Trio? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

With the acquisition of EE, the UK’s largest mobile network, and its £2bn investment in sports and other prime telly, BT can now compete with the rest on all telecoms services. And with forecast P/E multiples of only around 13 to 14, it’s not an expensive foray into the sector.

Expensive mobile

Compare that with Vodafone (LSE: VOD), and you’ll see a company that only does mobile telecoms and whose share price has gone nowhere in the past five years – it’s the weakest performer of the four, with just a gain of 15% to 217p. Granted, Vodafone has higher dividends on the cards, with more than 5% forecast for this year and the next two. But they’re nowhere near covered by earnings, and the shares are on a P/E for the year to March 2016 of more than 44!

Vodafone is developing its next-generation network which will cover a fair amount of Europe, and that will surely boost profits some time in the future. But right now the outlook is uncertain, and the shares seem to be priced for a takeover – they’re too expensive in my book.

Second place?

The five-year share price record for Sky (LSE: SKY) isn’t too hot either, with just a 22% gain to 1,004p. Dividend yields come out slightly ahead of BT’s with 3.4% forecast for the year to June 2016, and they’re well enough covered and are progressive. But on P/E terms, the shares look a little pricey to me – this year’s forecast gives us a multiple of 16, rising to above 17 with an earnings fall predicted for 2017.

Sky’s biggest non-financial strength is its position on the premium TV market, and though BT has made small inroads and cable TV is a serious competitor, Sky looks like it will be the dominant provider, especially for sports, for the foreseeable future.

Security breach, oh dear!

TalkTalk Telecom (LSE: TALK) shares were actually outperforming BT until June last year, but they were already going off the boil before a damaging security breach in October 2015 exposed some customer data to hackers. Thankfully the damage was small, but it has shaken confidence in the company’s ability to protect its customers. The share price retreated to a five-year gain of 77.5% – better than Vodafone and Sky, but still way behind BT.

The price has regained 24% since February’s low, to 239p, and there’s strong double-digit earnings growth forecast for the next couple of years, but it would take until March 2018 to get the P/E down under 14 from today’s 25. TalkTalk also has what I see as a bizarre dividend policy. It’s been making uncovered payments for the past two years with the same expected for March 2016’s mooted 6.6% yield, but even by 2018 we’d still see it only just covered.

There’s room in the telecoms sector for all four to do well, but BT still looks the most prudent long-term buy to me.

The post Why BT Group plc Still Beats Vodafone Group plc, SKY PLC And Talktalk Telecom Group PLC appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.