Apparently Love Island is a very popular TV show run by FTSE 100 stock ITV (LSE: ITV).
I wouldn’t know since I do not have a TV.
But even though the series has broken viewing records recently it was not enough to prevent revenues, pre-tax profits and earnings from declining for the first half of the year.
More worryingly the net pension deficit rose from £64 million to £343 million from half year to half year due to ‘an increase reflects a rise in pension liabilities following a decrease in corporate bond yields partly offset by a decrease in market expectations of long-term inflation’.
As for the general decline in revenues Peter Bazalgette, ITV Executive Chairman alluded to an ‘8% decline in NAR (net advertising revenue) caused by ongoing economic and political uncertainty’.
Bazalgette threw investors a few sweeteners by highlighting ‘continued good growth in non-advertising revenues’ as part of ITV’s ‘rebalancing’ of the business and that ‘guidance for 2017 remains unchanged. ITV Studios has already secured 85% of expected full year revenues, over GBP100m more than this time last year and is firmly on track to deliver good organic revenue growth’.
Despite the dividend being lifted there is no doubt ITV is facing a tougher time growing revenues, profits and earnings and I do not agree with Bazalgette in ‘the strength of the balance sheet’ when you consider a debt to equity ratio of 2.05 and a current ratio of 1.22.
Long term debt has ballooned up to £1,548 million at the end of 2016 from £571 million in 2014 and net debt rose to £1,074 million to 30 June 2017 from £637 million at 31 December 2016 ‘after acquisitions and earnout payments within ITV Studios, the ordinary and special dividend payments and pension deficit contributions’.
To combat this indebtedness ITV’s strategy remains on focus ‘to invest to drive organic growth and make acquisitions in line with our strategic priorities.’
The hope for shareholders is that the acquisitions gel and produce cost-efficient returns instead of simply bloating the balance sheet with goodwill/intangibles from paying too high a price.
A 35% decline in ITV’s share price does place it firmly in bear market territory but the PE ratio is a little high for me to go long today – I am placing ITV on the watchlist for a potential future position should the share price decline further.