Why My Double-Bagger ITV plc Beats BT Group plc & Vodafone Group plc

Pure content provider ITV plc (LON:ITV) is a better play on convergence than BT Group plc (LON:BT.A) or Vodafone Group plc (LON:VOD)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Broadcaster ITV (LSE: ITV) is the best telecoms company in my book — and in my portfolio.

Yes, you did read that correctly. The telecoms sector is in a state of flux with convergence, in one form or another, the order of the day. The ability to offer consumers combined ‘quad play’ services is behind BT‘s (LSE: BT-A) (NYSE: BT.US) proposed acquisition of mobile operator EE, and behind Vodafone‘s (LSE: VOD) (NASDAQ: VOD.US) purchases of cable TV companies in Europe. It’s a capital-hungry game with an uncertain outcome.

But everyone wants content. BT and Sky have been playing their own version of gamblers ruin over the rights to show premium sports events. Vodafone has been repeatedly tipped to be a bidder for Liberty Global — Merrill Lynch said it was an “essential” deal just last week. Liberty Global snapped up a 6% stake in ITV last year when Sky sold out its holding in the broadcaster. Sky had originally acquired a stake in ITV in 2006 as a blocking move to prevent what is now Virgin Media acquiring the broadcaster.

Food chain

This is one situation when it’s better to be at the bottom of the food chain when hungry sharks are hunting. With a race to acquire assets, an uncertain industry structure, and experimentation with different strategies, bidders risk over-paying. But being acquired is a rewarding take-out.

My investment in ITV has just double-bagged, with today’s 5% share price rise on the back of a 23% increase in underlying pre-tax profits. The broadcaster’s growth has been fuelled by the cyclical recovery in advertising revenues, and a deliberate strategy to reduce dependence on advertising by growing content production — and that’s paying off well. Since the turnaround duo of Archie Norman (ASDA) and Adam Crozier (Football Association) took over in 2010, the company has been transformed.

There’s a special dividend, worth 2.5%, too, as the company switches emphasis slightly from growth to shareholder returns. But there should be plenty more fuel in the tanks: currently ITV is in talks to acquire Talpa, the production company behind ‘The Voice’. It’s notable that whilst ITV’s advertising revenue has risen, its share of audiences fell: it blames the BBC’s bountiful budget, but the multiplicity of TV, broadband and mobile channels clearly takes its toll. That’s why consolidating content providers is a sound strategy: they make money irrespective of which channel their products are viewed on.

Lofty vision

Contrast this with the ‘true’ telecoms companies. Vodafone remains something of a cash shell, with investment into its prospective P/E of 38 times very much a vote of faith that management will deliver on its lofty vision and not over-pay in the process. I’m not saying that’s unlikely, but it carries a big risk.

As to BT, it has executed a shrewd re-positioning in recent years that has rewarded shareholders well, and its audacious encroachment on Sky’s domination of sports broadcasting has proved to be a game-changer. But BT’s £12.5bn acquisition of EE carries substantial execution risk, and will certainly be a major distraction for management.

So I’m happy sitting out the turmoil of the telecoms sector just now, holding shares in an asset that everyone values.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tony Reading owns shares in ITV. 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.

More on Investing Articles

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »