EmailITV shares are in demand after Credit Suisse issued a positive report on the outlook for the free-to-air broadcaster.
The bank has moved its target price from 250p to 270p, with an outperform rating, helping ITV rise 3p to 215.4p. The report comes after culture secretary Sajid Javid said this week he would examine whether public service broadcasters should be allowed to charge cable and satellite operators to carry their transmissions.
Credit Suisse analyst Omar Sheikh said:
We raise our 2014 earnings per share forecasts by 6% and our target to 270p. Our latest channel checks suggest UK ad trends remain strong, and we highlight that on our numbers, if retransmission fees were to be introduced in the UK, ITV's valuation could rise by £1.5bn or 38p per share. This suggests a potential core value for the group of close to 310p per share. We reiterate our long-standing outperform rating on the stock.
On advertising trends the bank said its latest survey of UK media buyers suggested ITV family third quarter growth could reach 5.8% compared to guidance of 4% to 5%. Advertising growth next year could reach 6.7%, it added.
And on the so-called retransmission fees, it said:
If we were to take the per subscriber monthly fees charged by US networks as a benchmark, we calculate ITV could generate £11m of incremental free cash flow in the first year, rising to £90m over the next decade. The net present value of this free cash flow stream is £1.5bn, or 38p per share. The impact of retransmission is not included in our forecasts or valuation of ITV at this point.
We think ITV deserves to trade at a premium valuation to European peers given (i) the relative strength of the UK advertising market; (ii) the strategic value of ITV Studios, and (iii) the potential for the introduction of retransmission fees.
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