Analysts at Berenberg downgraded broadcaster ITV from ‘hold’ to ‘sell’ on Tuesday, stating it now thinks consensus estimates are too high, particularly in respect of 2023.
Berenberg said while forecasts have fallen following the announcement of additional investment in ITVX, consensus still expects “modest growth” in advertising revenue in 2023, despite the fact that there no major international football tournament will take place next year, high fat sugar and salt advertising restrictions will come into force and the fact that it expects advertisers to continue shifting out of linear TV, which remains the vast bulk of ITV’s advertising revenue.
“On our below-consensus estimates, ITV trades at 10x 2023 P/E, which is a substantial premium to other broadcaster peers,” said the analysts, who also halved their target price on the stock from 128.0p to 64.0p.
The German bank also noted that although it understands why ITV feels the need to invest more in its online strategy, it views management’s assumption that it will not negatively affect linear consumption as “unrealistic.
“Meanwhile, the extra content spend that ITV has announced, while significant for ITV, is miniscule when compared to the budgets of the streaming giants, some of which are already shifting to an advertising monetisation strategy,” added Berenberg.
Analysts at Canaccord Genuity lowered their target price on software and services outfit Kainos from 1,880.0p to 1,400.0p on Tuesday following a trading update from the group.
Canaccord Genuity said following a “strong” first half, today’s trading update from Kainos had highlighted that revenues and adjusted pre-tax profits were in line with consensus forecasts of £297.0m and roughly £59.0m, respectively.
The Canadian bank noted that this implies organic growth of at least 25% in the year and around 20% in the second half following the strong 32% showing in the first.
However, while Canaccord said the long-term outlook for Kainos remained “attractive”, with low-teens consensus sales growth for 2023 looking “conservative”, the analysts also pointed out that high IT salary inflation will likely continue to mute margin and earnings per share growth over the next 12-18 months.
“With the shares trading in line with their historic average and a well-deserved ~20% premium to listed peers, we see limited valuation upside and maintain ‘hold’, with our new 1,400.0p target price based on three P/E approaches,” said Canaccord.
