The ITV plc (LON:ITV) (ITV.L) share price has been highly volatile in the last year. The company has struggled to deliver improving financial performance at a time when the UK economy is undergoing a challenging period.
Demand for TV advertising has come under pressure, with a weak UK economy ahead of Brexit being one potential reason for this in my view. This trend could continue, with the Brexit process not yet completed, and businesses potentially set to remain cautious about investment once the UK ‘goes it alone’.
Alongside this, the company may also have been affected by the transition of marketing spend towards online. Facebook and Google, for instance, are able to offer detailed potential customer information, and may provide stronger return on investment than TV advertising. As a result, digital advertising could continue to be a threat to TV advertising over the medium term.
With ITV’s shares now having a P/E ratio of around 11, I think that they offer a large margin of safety. Sure, the company is expected to post negative EPS growth over the next two years. But its operational performance has remained sound according to my research, and this could put it in a stronger position to generate EPS growth if the economic outlook for the UK improves.
Since the company is cyclical, it is arguably not a surprise that it is experiencing difficulties at the moment. Its business model is dependent upon the wider economy, and it is therefore likely to experience greater volatility than some of its FTSE 100 peers.
In my view, the long-term prospects for the business are relatively sound. It has what appears to be a sound strategy that is maintaining market share, while a refreshed plan under its current CEO could help it to deliver improved financial performance in future. As a result, I think that while its outlook is uncertain in the near term, in the long run ITV could perform well relative to the wider FTSE 100.