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Stock of the week: ITV

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Helal Miah, investment research analyst at The Share Centre, picks ITV, home of the X Factor, as stock of the week.

The share price of one of the UK’s five terrestrial broadcasters, ITV, is down 34% year-to-date, with the slump in advertising revenues being the main driver for this. However, analysts have a positive outlook for the stock due to an abundant cash flow and also the successful television programmes the channel broadcasts, such as the X Factor.

Interim results in July again reported a solid rise in profits from its Studios business to £121m (£85m). As overall revenue rose by 11% to £1.5bn and profits by 9% to £425m, interested investors will appreciate that the dividend increased by 26% to 2.4 pence. The group are targeting further cost savings into 2017, partly as a result of the uncertainty following Brexit.

With so many options now available to consumers ITV has had to fight hard to maximise its audience share. In a fast changing environment the changes that have been made in the group appear to have come in time to save what was once a troubled company. This has enabled the group to make a number of acquisitions, geared towards boosting its production business.

The result of the Brexit vote hit the share price hard, as a result of concerns over its UK exposure and the effect on advertising rates. However, some analysts have suggested that this fall may have been an over-reaction, highlighting the studios business, improving dividends and that a bid for the group remains in the background. We therefore continue with our buy recommendation, but drip feeding will be preferable.

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