ITV warns of softer ad sales amid Brexit uncertainty

ITV has seen some softening in advertising revenues at the start of the fourth quarter due to Brexit uncertainty and now expects total advertising to be broadly flat over the full year.

For the first nine months of the year net advertising advertising revenues had been up 2%, driven by 43% growth in online revenues, but the fourth quarter is expected to see a 3% decline, with November up 2% but the key month of December seen falling 6-8%.

The FTSE 100 broadcaster reported £2.26bn of external revenues, up 6% on this time last year, with 2% growth in broadcast & online revenue to £1.5bn and 7% organic growth in total ITV Studios to £1.1bn.

Studios revenues had been up 16% in the first half and as well as the slower third quarter are also expected to flatten off in the fourth quarter, with organic revenue growth falling to around 3% over the full year as Gordon Ramsey's Hells Kitchen will not figure this year compared to two in 2017, while the Netflix collaboration on science fiction action epic 'Snowpiercer' is now being delivered in 2019 rather than in the fourth quarter as as originally anticipated.

ITV shares fell 3% to 148.35p by late afternoon on Wednesday.

The nine-month figures were as expected, said broker Numis, expecting consensus downgrades for suggestions of the weaker finish to the year.

While broadcast TV ad revenues are seen as "under pressure", Numis sees ITV as having a "modest" valuation with "strategic value" in the ITV Studios business. "The key to rerating would be increased confidence in the new CEO plan to build non Broadcast revenues, though execution remains uncertain, especially over launch of a UK streaming service."

For the full year and next year Numis forecasts adjusted EPS of 14.6p and 13.9p versus the previous Reuters consensus 15.3p and 15p. "We estimate new underlying downgrades at roughly half of these figures and half is extra costs we knew about. We have not included any new streaming investment or revenues and await further detail on any planned launch."

Analysts at Shore Capital cut their full year EPS forecast 4% but remained positive on the group's medium-term attractions and view the stock as "modestly valued".

ShoreCap noted that SOV (share of voice) and SOCI (share of commercial impacts) stood at 23.3% and 36.2% during the first nine months of the year - significantly up from 21.5% and 34.2% during the period last year. "Encouragingly, there was also a 37% YoY increase in time spent watching the ITV Hub - an important growth driver going forward."

Nicholas Hyett, analyst at Hargreaves Lansdown, said that while overall performance was in line with management expectations, Q3 numbers left a "bit of a bad taste" in his mouth.

"Studio revenue growth is slowing, that’s partly explained by the fact it’s a lumpy business but it’s still not ideal. The bigger issue is a slowdown in advertising in the broadcast business, which still accounts for 57% of revenue.

"While ITV’s content is still getting bums on sofas, with viewing numbers up nicely, a gloomy economic outlook means the attention of the viewing public isn’t as attractive to advertisers as it once was.”