An ITV uncoupling is still more hope than reality

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In the ITV show Love Island, couples decide at ceremonies if they want to stick together, or whether they would be better off “uncoupling”. The British broadcaster is, once again, at the centre of speculation about unions and separations of its own. But what looks attractive on a spreadsheet will not be so easy to pull off in reality.

Potential suitors, including private equity, are again tentatively looking at whether it might make sense to carve up ITV, according to reports.

Chatter about whether ITV will be taken over has aired on and off for nearly 20 years. Long-standing shareholders would be forgiven for still lamenting that a £4.7bn takeover attempt by the cable broadcaster NTL — which later became Virgin Media — in 2006 never happened. Today, ITV’s market capitalisation is about £2.7bn.

The market still largely views ITV as a “linear” broadcaster whose fortunes are too closely tied to the advertising whims of British companies. That is despite chief executive Carolyn McCall increasing revenues at its production arm — which makes programmes both for ITV and other broadcasters — by 37 per cent since 2017 to nearly £2.2bn last year.

The recent sale of rival production company All3Media on an implied enterprise value/ebitda multiple of about 12 times has given bankers and analysts good reason to believe ITV is undervalued.

Applying a similar multiple to ITV Studios would suggest it alone is worth about 68p per share, says Thomas Singlehurst at Citi. ITV’s shares were trading around 72p on Monday, after jumping a 10th on bid reports and despite its traditional “media and entertainment” business still accounting for 42 per cent of operating profit last year.

On that basis, a carve-up could unlock value. But any potential bidders would need to establish a new working relationship between ITV Studios and the remaining broadcaster. The former makes a lot of core ITV content, including Love Island and Coronation Street. Separation of these assets would be “difficult”, reckons Johnathan Barrett of Panmure Liberum. Indeed, in a 2022 interview, McCall had dismissed selling the production arm in its entirety, detailing how “it works really well within ITV”.

It is also not clear why anyone would want to be left with the rump of the ITV business. For all of its progress with streaming service ITVX, this business still relies on volatile linear ad revenues. Any sign of improvement in the latter still appears to be ITV’s greatest hope of a sustained share price love-in.

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