ITV shares plummet 40% this year. Is this a buying opportunity?

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ITV (LSE: ITV) shares have not been popular among investors recently, and the share price has fallen by nearly 60% over the last five years.

However, the company published its latest trading update on Thursday and has recorded a strong financial performance, with a commitment to pay a total dividend of at least 5p for the full year, which is equivalent to a minimum dividend yield of 6.8% at the current share price.

In its latest trading update, we can see that ITV recorded its highest digital viewing with 814m streams in H1 2022 on ITV Hub, up 8% year on year. I believe that ITV’s offering, a free ad-funded streaming service, is best placed in the current inflationary environment compared to its competitors. Inflation is projected to reach double digits this year, creating a horrendous cost-of-living crisis in the UK.

Potential catalysts

The first potential catalyst for ITV is the effect of inflation on viewing habits in the UK. The squeeze on real disposable income has changed viewing habits as more people cancel their video-streaming subscriptions to save money.

New research from Kantar, a market research firm, shows that a total of 1.66m video streaming subscriptions were cancelled in the second quarter of 2022. ITV is likely to be a beneficiary of this trend as its ad-funded business model is more adequate for the current environment.

The second potential catalyst for ITV is the 2022 FIFA World Cup in Qatar this year. The BBC and ITV have announced their coverage schedule for the tournament. ITV will be showing England and Wales group games against the USA as well as games involving tournament favourites such as Brazil, France, Argentina, Spain and the Netherlands.

The World Cup promises to be huge event for the channel, with a strong potential upside in advertising revenue for Q4. The further England advances in the tournament, the better it will be for ITV. Shareholders will be hoping that it’s coming home!

Risks

ITV competes for consumer attention and has been struggling from a lot of competition, for example, Netflix and Amazon Prime Video have gained a large share of commercial viewing in the UK. With bigger budgets than ITV, Netflix and Amazon Prime Video are able to attract viewers with better quality content.

ITV’s latest trading update also showed a weak balance sheet with a net debt position of £615m as at 30 June 2022. A net debt position might limit ITV’s capacity to invest further and fight off competition from other video streaming services.

Conclusion

Overall, ITV is performing well and is expected to be a beneficiary of the current inflationary environment and the upcoming 2022 FIFA World Cup in Qatar. The company also pays a strong forward dividend yield of 6.8%, which is above the FTSE 100 index average.

The post ITV shares plummet 40% this year. Is this a buying opportunity? appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Yuven Chetty owns shares in ITV. The Motley Fool UK has recommended Amazon and ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.