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Here’s why I just bought more ITV shares

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer

It has been a challenging year for shareholders of broadcasting company ITV (LSE: ITV). Over the past 12 months, ITV shares have lost 44% of their value. Looking at the way the share price has been dropping, it is not clear that the fall has ended yet. The shares could keep tumbling in price from here.

So, why did I buy more of them this week?

Strong business outlook

I think the market has been getting nervous about the outlook for the company without really considering the facts of its performance.

I do see some risks here, to be clear. Traditional television is in long-term structural decline, which could hurt the company’s future advertising revenues. It is developing more digital platforms, but that requires capital expenditure that could also hurt profitability. On top of that, a recession might mean advertisers reduce their budgets.

But as a long-term investor, I try to weigh risks against what I see as opportunities. The digital platforms should ultimately help improve ITV’s reach. Advertising may wax and wane across the economic cycle, but I continue to expect a large advertising market in coming decades and ITV is positioning itself to keep benefitting from that.

Meanwhile, the globalisation of content production means that ITV has potentially lucrative assets, from its library of past hit shows to its studio and production facilities. In that sense, the proliferation of television channels and media platforms could actually turn out to be a blessing, not a curse, for the company.

Encouraging momentum

A quick look at the firm’s interim results from July underlines much of the bullish case for ITV shares, in my opinion.

External revenue grew 8% compared to the same period last year. Its total revenues (including internally generated ones) grew twice as much. Statutory operating profit was up 46% to £228m while earnings per share doubled. The company reiterated its commitment to a 5p per share annual dividend. At the current share price, that equates to a 7.9% yield. Dividends are never guaranteed, but management clearly feels optimistic about its ability to deliver at the intended level.

Not everything was as I would have liked. Net debt grew, for example. But overall I think the interim results showed that ITV is performing well as a business.

Why I bought ITV shares

So although the market has marked ITV shares down, I see reasons to be bullish about the prospects for the company. I think it has some strong competitive advantages, such as brand recognition and unique content. It is consistently profitable. Yet the shares trade on a price-to-earnings ratio of just six.

It may take a while for the share price to improve and reflect the business potential again. But I am hoping it will. That is why I bought more ITV shares this week to increase the size of my holding.

The post Here’s why I just bought more ITV shares appeared first on The Motley Fool UK.

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C Ruane has positions in ITV. The Motley Fool UK has recommended 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.