ITV (LSE: ITV) shareholders have been through a tough time. The ITV share price is now down 43% over the past five years.
It had been recovering well enough from the 2020 stock market crash. Three months ago it was a few percent ahead over two years. But since ITV’s 2021 high in mid-June, we’ve seen a decline of 14%. ITV shares are on a low P/E by historic standards, and I can’t help feeling that’s handing me a tempting buying opportunity.
ITV’s earnings had been falling for years. And a decline in advertising during the pandemic gave it an extra kicking. So much ad revenue is driven by big ticket sports events, and the pandemic brought all that to a halt. But the crowds are returning to the stadiums. And advertising spend in general is starting to pick up strongly.
The company recorded a 22% fall in earnings per share for 2020. But at the interim stage in 2021, adjusted EPS had more than doubled from the first half last year. That came after total revenues jumped by 27%, helped by a 29% rise in advertising revenue.
ITV suspended its dividend in 2020. But it’s coming back as the firm targets a “notional dividend of 5p per share which we expect to grow over time.” On today’s ITV share price, that would yield 4.3%.
ITV share price valuation
What about the share price valuation? If first-half adjusted EPS doubles by the end of the year, we’ll be looking at a P/E of under 10. On the face of it, that looks attractive. So why are ITV shares heading downwards instead of up? Well, there are still plenty of uncertainties out there.
Speaking in July, chief executive Carolyn McCall spoke of “the ongoing pandemic risk on our advertising and ITV Studios revenues.” And that’s still is a genuine risk, especially as we head towards the winter. I mean, we’ve already had the government denying it’s had any thoughts of a possible mini-lockdown in October to help calm the renewed growth in Covid infections. And when I hear a government denying something, I usually get a bit twitchy.
I suspect we’re seeing a bit of a reality check on shares all round, not just on the ITV share price. I can imagine thoughts going something like: “Hang on, that Delta thing is spreading fast, and with winter flu coming along, we could be in for a hard time.“
No major debt problem
Still, on the upside, my perpetual fear of debt doesn’t seem to be justified in this case. At interim time, ITV reported “net debt to adjusted EBITDA leverage on a 12-month rolling basis of 0.6x.” That’s fine by me. And total liquidity of £1,482m (almost half of which is cash) makes it better still.
H2 comparatives surely won’t be as rosy as this, mind. These latest figures look great against what was a devastating H1 in 2020, and the second half wasn’t nearly as bad. So I’m wary of feeling too optimistic about one set of results, especially as ITV had been struggling even before coronavirus arrived.
But on the whole, despite what I see as medium-term uncertainty, I’m tempted by the ITV share price. I rate it as a buy candidate for my Stocks and Shares ISA.
