Free-to-air (FTA) broadcaster ITV (ITV) is a perfect example of why it is better to make your stock selections before results are published and not on the day. The FTSE 100 company is down 2.6% to 117.1p despite revealing forecast-busting preliminary numbers and a special dividend on top.
Make no mistake, the £4.7 billion cap operates in a tough market with its core net advertising revenue (NAR) measure for the ITV 'family' of channels flat in 2012. But this was better than an overall decline in the TV advertising market as spend shifts online, and better than analysts had been expecting.
Analysts are now likely to upgrade their forecasts, and news of a 4p special dividend, in addition to 2.6p of payments for the full year, was also welcome. So was an outlook statement which pointed to 5% NAR growth in the first quarter of 2013. But after a 24% three-month rally in advance of the numbers all this was already priced into ITV's shares.
Indeed sentiment could be about to turn against ITV in a more meaningful way warns Investec, reiterating a 'sell' recommendation. Its analyst Steve Liechti says investors should be worried about the second quarter, which, to be fair ITV did flag up as likely to be tough as June 2012's UEFA European Championship creates tough comparatives.
But Liechti's negative stance really comes down to his concerns about the 'structural FTA broadcast issues' which face ITV. Internet TV and changing media consumption habits of the upcoming younger generations, where there is a big leaning towards on-demand content via mobile platforms, increases the competitive environment for FTA operations which was already difficult thanks to the success of the pay-TV model operated by BSkyB.
BSkyB controls premium content because it has the financial firepower, bestowed by a 10 million-plus subscriber base which is far superior to the cyclical advertising-driven FTA model, to buy it. It is therefore much better positioned to control distribution, irrelevant of the platform, and its on-demand internet TV and video offerings are already trumping the new internet competition.
According to Advertising Association and World Advertising Research Council figures internet advertising was £4.8 billion in 2011, the biggest segment of a £16.1 billion market, ahead of TV's £4.2 billion. BSkyB is in a much better position to tap this growth than ITV.