TV habits are changing - and so is broadcaster ITV
Back in the 1960s the Canadian businessman Roy Thompson etched his name into the quotation books when he said that British commercial television was "like having your own license to print money." And for a long time that's exactly what it was.
But as with so many other commercial ventures, the internet and all the disruptive technologies have taken the business model, popped it into the shredder and Heaven knows what the ultimate consequences will be. Nevertheless, efficient management, an open cheque book for acquisitions and a weather eye for future changes in viewing habits can sustain even a big media giant like ITV, our target company today.
ITV owns all of the regional licences in England and Wales and recently snapped up UTV.
It has the largest marketing platform in the UK, reaching over 80pc of the TV-owning population. It responded to the complexities of modern television by exploiting its creative content which it distributes globally.
The company can trace its origins back to the merger between Granada TV and Carlton Communications 12 years ago. But these days its main channel is ITV - the largest commercial channel in the UK - while its network also includes ITV 2, 3 and 4, a kid's channel, C-ITV, and ITV Encore, its pay channel. ITV's market share in Britain is 21pc (the BBC has 32pc.)
A key area for the company is its production arm, ITV Studios, which generates over half of its £850m revenue outside the UK, with programmes like 'Coronation Street', selling in 132 countries. It also has studios in the US, Australia and elsewhere in Europe.
Its global studio footprint allows it to provide content tailored for local markets and produces for broadcasters like the BBC and others.
It has also been hot on the acquisition trail and last year bought the Dutch Talpa Media, owner of the hit show, 'The Voice'.
ITV's competitive environment has seen the demand for global TV content continue to grow, but with more channels, more platforms and a large competitive international pay TV market. As a producer of TV content it is also seeing the emergence of players like Amazon and Netflix, encroaching on its market.
The shape of ITV has been evolving since 2010 and is now in its sixth year of growth. It has made significant progress in rebalancing its business, reducing its dependence on the cyclical UK spot advertising and driving new revenue streams.
Today, over half of its income comes from licensing, pay TV, sponsorship of programmes, video on demand, studio revenue and 'commercial consumer interactive with its biggest shows.' That means making shows like 'X-Factor' which involve viewer voting competitions.
The company has been performing well for a number of years and has a strong balance sheet. The share price showed its appreciation by climbing from 80p three years ago to 204p today.
Revenue last year was £3bn with operating profits of £865m, an increase of over 50pc in the last five years.
In this period ITV has returned over £1bn to its shareholders. Dividend per share last year was 16.5p which includes a special payment of 10p per share.
The business is cash generative but net debt increased to £320m after costs of acquisitions and dividend payments.
Firstly, quarter results were good with total revenue up 14pc and Studios sparkling with an increase of 44pc. As the UK government is considering transmission charges the company could benefit as satellites broadcasters like Sky might be required to pay ITV for the use of its channels.
However, the departure of the chairman, Archie Norman, after six years at the helm is making investors nervous.
There is a temptation to sit on the fence and see how this latest disruption pans out, but the ITV show has been entertaining so far. The recent share price looks attractive for investors.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.