Does today’s news mark the start of a recovery for the broadcaster and media group? As a shareholder I may be biased, but I feel very positive about the opportunity here. In this article I’ll explain why I’m so bullish.

Better than expected

One big number that’s closely watched by the market is ITV’s ad sales. Last year’s results were boosted by the World Cup, so this year’s figures were expected to be lower. However, advertising revenue only fell by 5% during the first half of the year, compared to previous forecasts in May for a 6% fall.

Some of this decline was offset by an increase in online revenue, which rose by 18%. I think this number could rise much faster as the company’s digital transformation gathers pace.

Technology in the pipeline for the next 18 months includes a new recommendation engine for viewers and a programmatic advertising platform that will enable ad agencies to sell ads directly into the ITV Hub. Investment is also under way into other data-driven marketing activities.

Looked at a different way, ITV appears to be hoping to do for television advertising what Google did for internet advertising…

A whole lotta love (island)

One of ITV Studios most successful programmes so far this year is Love Island. The broadcaster says that each episode has averaged more than 5.5m viewers, gaining an 18% share of viewing.

To cash in on this continuing success, a second series of Love Island is planned each year from 2020.

ITV also hopes to cash in on the popularity of another service that’s popular with 16-34 year-olds — Netflix. The BritBox on-demand subscription service is a joint venture with the BBC that will launch later this year.

The company says it will provide “the largest collection of British Boxsets available anywhere”, tapping into new production and both companies’ huge archives.

Spending on BritBox will peak at £40m next year, before starting to fall. The cost is fairly modest compared to the money being spent by some rivals. If successful, it should help to reduce ITV’s dependency on external advertisers.

Do the numbers add up?

Overall, ITV’s adjusted operating profit fell by 13% to £327m during the first half. This was largely as expected. One reason for this is that ITV Studios’ calendar of new releases is weighted to the second half of the year, when revenue and profits should be stronger.

There’s no change to financial guidance for the year and CEO Carolyn McCall confirmed that she expects the firm to pay a dividend of at least 8p per share this year.

Although net debt continues to edge higher, I remain comfortable with ITV’s financial situation. I believe this business is attractively valued for investors, given its high profit margins.

A return to 200p?

Could the ITV share price return to 200p, a level last seen in May 2017?

I think this is possible, although patience may be required. At under 115p, the shares trade on about eight times earnings and offer a dividend yield of more than 7%. I think that’s too cheap, and continue to rate the shares as a strong buy.

The post Is the ITV share price heading for 200p again? appeared first on The Twelfth Magpie.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Roland Head owns shares of ITV. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), and Netflix. 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.

However, in most cases there are logical reasons for a share price to decline. A challenging period of trading, a botched contract, a general slowdown in the economy, poor weather. The list goes on, and management often comes up with more excuses than I did during my school days in order to explain why I hadn’t completed my homework. These are the sorts of companies that I usually try to avoid.

Fundamentals or fear?

On the other side of the coin however, there are companies out there that are trading in line with expectations yet have seen the share price suffer along with general market sentiment. I suspect, at present, this has been brought about by the fear of the potential impact of a Brexit, how UK companies will continue to trade in Europe and the impact that a separation from the Eurozone would have on trading.

Three of the shares that I believe fall into this category are domestic broadcaster ITV (LSE: ITV), housebuilder Barratt Developments (LSE: BDEV), and budget airline easyJet (LSE: EZJ).

As can be seen from the chart covering the last six months all of the shares have managed to underperform a rather weak FTSE 100. But is this simply down to each business underperforming or are investors fearful of what the future may hold?

Let’s take a closer look…

When management announced ITV’s 2015 results, investors took fright as first quarter revenue was forecast to be flat, followed by an improvement in the second quarter. However, management also pointed to Online, Pay & Interactive again delivering double-digit revenue growth, while ITV Studios was also predicted to deliver double-digit revenue and profit growth, driven primarily by recent acquisitions.

There’s a similar story over at housebuilder Barratt when the interim results were announced in February. Sales performance across the group in the second half was strong when compared to the same period in 2015 according to the CEO David Thomas, resulting in total forward sales up by 13.4% on strong comparatives from the prior year.

Over at easyJet, management reported that earnings were in line with consensus market expectations despite the tragic events in both Egypt and Paris in November and December of last year.

CEO Carolyn McCall felt that the progress was down to easyJet’s excellent customer proposition, not to mention low oil prices, allowing the company to offer lower fares driving an 8% increase in passenger numbers in the first quarter.

One thing is for sure, all three companies update the market starting with easyJet on Tuesday and finishing with ITV on Thursday, and I for one will be interested in the progress made thus far in 2016.

Dividend delight

One benefit of the lower share price is the positive impacts on the dividend yield. Now, as we saw with a number of miners, the 10%-plus yields were seen as (and indeed proved to be) unsustainable. However with these companies, which now offer an average yield of over 5%, I believe the payout here is sustainable and the companies are certainly worthy of further research for dividend seekers.

The post Can ITV plc, Barratt Developments plc and easyJet plc rebound? appeared first on The Twelfth Magpie.

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Dave Sullivan owns shares in ITV. The Motley Fool UK has no position in any of the shares mentioned. 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 company reported strong customer growth in the year, with 973,000 new customer additions in the year. This is 45% higher than in the previous year, and reflects growing customer demand for Sky’s products across Europe. Its Italian business, which had previously been struggling from intense competition from low-cost rivals, is seeing signs of improvement. Its customer base there was stable in 2014/5 after declining for three consecutive years.

Churn rates, which is the percentage of customers that cancel their subscription with the company, decreased in all five markets. The biggest improvement was in Germany & Austria, where the churn rate dropped 1.8 percentage points to 8.6%. This reflects a strong increase in customer loyalty, which the company attributes to continued investments in customer experience.

In order to set itself apart from its competitors, Sky has been increasing the number of big-budget original content it commissions. With Sky’s new pan-European ownership structure, the company has been able to simultaneously launch home-grown dramas across multiple markets, which allows it to justify increased spending on original content.

Live sports is another area where Sky is particularly strong. But its rival in the UK, BT (LSE: BT-A), is intensifying competition by offering its sports channels for free to all its TV customers. Earlier this year, Sky won five of the seven Premier League TV packages in the UK, but it had cost Sky some 83% more than it did in the last auction three years ago. In turn, BT won the exclusive live television rights for the Champions League in June.

Although BT is making strong inroads with sports TV customers, its narrow focus has limited its appeal to non-sports customers. As a result, Sky has a 65% market share in the UK paid TV market. But, this could soon change, as BT plans to bolster its entertainment range by launching the AMC channel exclusively on its network.

Aggressive competition, particularly on price, is usually a bad sign for investors, as it usually leads to lower profitability for all businesses involved. But, analysts are still sanguine about the earnings prospects of both companies. This is because although competition is intensifying, margins are still expanding and the projected revenue growth in the paid-TV and broadband markets will more than offset the impact of competition.

So, which stock is the better buy?

On valuations, it will have to be BT Group. BT’s forward P/E is 14.9, compared to Sky’s 17.6. Both stocks have a forward dividend yield of 3.1%; but BT has better dividend cover. In 2014/5, BT’s free cash flow was three times its dividend, whilst it was only 1.9 times for Sky. BT’s strong momentum in growing its free cash flow should mean it could deliver stronger dividend growth over the medium term.

The post Does Sky plc’s Upbeat Earnings Release Make It A Better Buy Than BT Group plc? appeared first on The Twelfth Magpie.

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Jack Tang 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.

The regulator said that spinning off BT’s lucrative Openreach infrastructure division “could deliver competition or wider benefits for end users”.

Openreach is the BT division responsible for providing the broadband infrastructure used by both BT and resellers such as Sky (LSE: SKY) (NASDAQOTH: BSYBY.US) and TalkTalk Telecom Group, which buy broadband capacity and services wholesale from Openreach.

The risk has always been is that BT has an obvious incentive to operate Openreach in such a way as to provide a less efficient service for these competitors.

There’s also a twin temptation for BT to use some of the profits from Openreach to subsidise its other businesses — most obviously its television venture.

BT denies these accusations, but this morning’s Ofcom statement made it clear that the regulator still has concerns:

“[separating Openreach] would remove BT’s underlying incentive to discriminate against competitors.”

To be fair, Ofcom did admit that separating Openreach wouldn’t necessarily be a magic solution, commenting that it might not address concerns relating to service quality and the timing and level of investment decisions.

BT investors — don’t panic!

It seems pretty clear that being forced to spin-off Openreach would be bad news for BT. However, any decision is a long way in the future, and Ofcom is considering other options such as strengthening the existing rules relating to BT’s wholesale services.

BT is strongly opposed to a split and has fended off previous attempts with the help of intensive lobbying. I think a forced spin-off is unlikely.

However, if a split did happen, it could provide an interesting investment opportunity for dividend investors. An independent Openreach would almost certainly end up as a FTSE 100 listed utility, which could be an attractive income buy.

What about Sky?

There are probably few things Sky’s management would like more than a chance to level the playing field in broadband, where BT enjoys many of the advantages of a monopoly.

Sky has no choice but to buy its broadband services wholesale from BT, despite the telecoms firm fast becoming Sky’s biggest competitor for television sports rights in the UK. BT’s aggressive bidding has almost certainly pushed up the costs paid by Sky for its football rights.

It must be frustrating for Sky to be funding the profits of one of its main competitors.

Should you buy Sky or BT today?

Both BT and Sky look quite fully valued at the moment. BT trades on a 2016 forecast P/E of 15.2, while Sky looks dearer on an equivalent P/E of 17.7.

Both offer a prospective yield of about 3.1% and generate enough free cash flow to comfortably cover these payouts, despite high levels of debt.

Where they differ is in profitability. BT’s operating margin has risen from 10.3% in 2010 to 17.8% last year That’s impressive.

Over the same period, Sky’s operating margin has fallen from 19.5% to 13.5%. The firm’s bold expansion into Europe aims to address this decline, but it’s worth monitoring.

I think both companies are a cautious buy today, although personally I shall be waiting for a cheaper opportunity.

The post Would An Openreach Spin-Off Be Good For Shareholders In BT Group plc & SKY PLC? appeared first on The Twelfth Magpie.

More reading

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• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
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Roland Head 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.

The BT share price is up a dashing 236% over the past five years, against a lumbering 73% at Sky (although both beat the FTSE 100, however, up 33% over the same period).

BT surprised everybody by thrashing Sky on home turf 18 months ago with its smash and grab raid on Premier League broadcasting rights, and now it’s at it again.

Good Sport

The telecom giant’s broadcasting division has just won exclusive rights to broadcast the UEFA Champions League for the next three seasons.

The competitions will be free to customers who take BT TV, who can also see the tournament’s despised sibling the Europa League. BT will broadcast all 351 matches.

Those watching on Sky via the BT Sport App or on BT Mobile will have to pay £5 a month to see the matches.

BT is also launching three new channels: BT Sport Europe, BT Sport Showcase (which will air some Champions League games free to all) and BT Sport Ultra HD.

The Champions League is the most prestigious club competition in Europe, but will the £897m investment score for BT?

Different League

Sky has been spitting sour grapes, stating that it had just had its lowest ever Champions League audiences, with no single game appearing in its top 40 football matches.

The Premier League is seven times bigger, it says.

I don’t recall Sky complaining when they held the broadcasting rights and were hyping the tournament to the heavens, but they have a point.

The tournament drags on, the group matches ain’t much of a spectacle (FC Basel 1893 v PFC Ludogorets Razgrad, anyone?), and English clubs aren’t the forces they were.

It also lacks the local “needle” that the Premier League brings, which is why Sky paid £4.2bn for three years of domestic live coverage.

Winner Takes Nothing

BT has impressively set out its stall, but football message boards suggests the fans aren’t convinced, moaning about shelling out more money for the same product, and sceptical about the continuing appeal of European football, especially now it has largely lost its terrestrial stage.

Much of their ire is directed at Sky, which has been charging more but will now be offering less.

To recoup its cost, BT needs to sell the Champions League pubs and clubs as well as home viewers. They may struggle, unless English clubs put up more of a fight next season. Sky Sports still has most of the matches viewers want to see.

Sky is certainly the loser from this deal, but I’m not convinced that BT will end up a winner.

The post Is BT Group plc’s Champions League Victory A Game Changer For Sky plc? appeared first on The Twelfth Magpie.

More reading

• Why has the BT share price almost doubled – yet gone nowhere?
• Down 16% in 5 weeks, are BT shares just too good to miss?
• Down 16% to around £2.03! Here’s where BT’s bargain-basement shares ‘should’ be trading right now
• The BT share price is already up 91.5% in 2 years! Can it hit £3?
• Want to get rich on passive income? Here are some mistakes to avoid

Harvey Jones 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.