2nd Mar 2023 15:43
(Alliance News) - ITV PLC on Thursday reported rises in annual profit and revenue in 2022 as it raised its total dividend, but analysts cautioned that a slowdown in advertising revenue could weigh on the company.
"Overall these earnings are a bit of a mixed bag," said Victoria Scholar, head of investment at interactive investor. "On the one hand, ITV has enjoyed strong top line growth, yet its bottom line has struggled under the weight of investment."
The London-based television broadcaster and content producer said 2022 pretax profit was up 4.4% to GBP501 million from GBP480 million in 2021. On an adjusted basis, however, pretax profit fell 13% to GBP672 million.
Revenue climbed 7% to GBP4.35 billion from GBP4.04 billion, including a 19% rise in ITV Studios revenue to GBP2.10 billion from GBP1.76 billion, although Media & Entertainment revenue fell 1% to GBP2.25 billion from GBP2.28 billion.
"ITV has been grappling with a slowdown in ad revenues, with the exception of digital ads which have proven to be very resilient. It has also been dealing with pressures from inflation which are eating away at its profit margin. Plus it has been investing heavily in its ITVX streaming service, which has negatively impacted operating profit short term," ii's Scholar explained.
Total advertising revenue dropped to GBP1.93 billion in 2022, from GBP1.96 billion the previous year.
Russ Mould, investment director at AJ Bell, said it was "no surprise" that ITV's advertising revenue was "suffering" given the current backdrop, adding that this didn't make it "any less sobering."
"At a time when the company is trying to get its ITVX platform off the ground it is particularly unhelpful that advertising is challenging. The business is having to flex the balance sheet to invest in ITVX with net debt increasing materially, while profit is also down," he said.
Nonetheless, Matt Britzman, equity analyst at Hargreaves Lansdown, said that ITXV had "come out the blocks firing."
"A successful launch, and the momentum it gives, was vitally important for ITV's transition away from the declining audiences that traditional broadcast attracts. That doesn't come cheap though and increased investment in ITVX has taken a decent chunk out of profits - a necessary evil to compete against the behemoths of the streaming industry," he said.
However, for Britzman the ITV Studios business remained ITV's "golden goose", "putting in a record fourth quarter and delivering all the group's top-line growth for the year."
ITV said rising ITV Studios revenue was ahead of the market and was alongside a 58% increase in high-end scripted hours produced. It claimed to have taken advantage of the global demand for scripted content.
Nineteen formats were also sold in three or more countries, up from 15 in 2021, as programmes such as 'My Mom, Your Dad' and 'Make Love Fake Love' were among those picked up abroad.
Looking ahead, ITV expects strong growth in digital advertising in the first quarter of 2023, with revenue to increase 25% from the first quarter of 2022.
Chief Executive Officer Carolyn McCall said: "We enter 2023 with strong momentum and are on track to deliver all our 2026 [key performance indicator] targets despite a continuing uncertain macro environment. ITV's balance sheet is robust enabling us to continue to invest to support our strategy and deliver returns to shareholders."
Among ITV's 2026 KPI targets is aiming to deliver at least 5% average revenue growth per year until 2026 and to grow ahead of the market.
It also said it remains committed to its ITV Studios adjusted earnings before interest, tax, depreciation and amortisation margin guidance of 13% to 15% from 2023 onwards.
Shore Capital said it was pleased with ITV's "robust" performance as well as the commentary around ITVX's early performance.
"The launch of this platform looks well-timed as we anticipate further scrutiny of household spend on subscription services and do see part ad-funded offerings as a hugely attractive alternative. These dynamics bode well for digital revenue growth although we note that linear TV's ability to deliver a mass market audience remains a big draw for brands."
Shore retained its 'buy' recommendation on ITV shares.
On Thursday afternoon in London, ITV shares were down 3.4% at 85.44 pence. Over the past 12-months, the stock is down 23%.
By Heather Rydings, Alliance News senior economics reporter
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