Free-to-air broadcaster ITV (ITV) gains 1.1% to 167.8p despite warning of an earnings hit from weaker net advertising revenue (NAR) in its third quarter update.

The share price action makes sense in context. The market had already priced in a weak contribution from ads, with ITV stock down some 40% year-to-date.

ITV chart

The company says NAR on it channels is down 4% in the third quarter from a flat performance in the first half and says it will fall 7% in the run-up to Christmas. ‘In recent weeks the political and economic uncertainty has increased and we are currently seeing more cautious behaviour by advertisers,’ it says.

MAJOR PRODUCTIONS

On a brighter note the company continues to reduce its dependence on NAR with revenue from sources other than ads up 15% in the first nine months of 2016 as its ITV Studios production business performs strongly thanks to shows such as Victoria, Poldark and a rebooted Cold Feet.

Cold Feet

Liberum analyst Ian Whittaker reiterates his ‘buy' recommendation and 350p price target but expresses some disappointment on guidance for flat earnings from ITV Studios in 2017 due to more investment ‘and (we think) profits for The Voice in China being all booked in 2016 instead of being spread’. Whittaker had penciled in earnings of £330m next year against £268m in 2016.

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Issue Date: 10 Nov 2016