FTSE 100

Will the ITV share price ever return to its 5-year high?

Can ITV (LON: ITV) deliver an improving share price performance?

The ITV (LON: ITV) share price currently trades at around 102p. This compares to a five-year high of approximately 218p.

Clearly, the company has been extremely unloved by investors over recent years. This is largely due to the effect of the pandemic on its financial performance. Covid-related restrictions have made it extremely difficult, if not impossible at times, for the business to generate new content.

In addition, advertising revenues have suffered as an uncertain economic outlook prompted reduced non-essential spending by many of ITV’s advertising customers.

Share price recovery prospects?

After a disappointing financial performance in the previous year, ITV reported an improvement in its first-half results. For example, total external revenue increased by 27% versus the same period of the prior year. Meanwhile, adjusted earnings per share more than doubled.

Key reasons for the company’s financial improvement include less onerous Covid-19 restrictions, as well as cost reductions. The former could mean that as the pandemic gradually recedes in terms of its impact on the economy and people’s freedoms, ITV is able to operate in a more ‘normal’ capacity.

This may be good news for its ability to create new content, while it could mean that demand for TV advertising increases – especially since the UK and global economies are widely forecast to deliver strong recoveries this year and next year.

Cost reductions appear to have made the company more efficient and flexible. Meanwhile, the launch of streaming services such as BritBox and ITV’s Hub+ service have experienced rising subscriber numbers. For instance, they both delivered 10% subscriber growth in the first half of the year and could represent more stable revenue streams for the business over the long run.

ITV share price valuation

Clearly, it is extremely difficult to ascertain whether the ITV share price offers good value for money. Its recent performance could prove to be a temporary decline that quickly recovers as the pandemic subsides. However, should there be further restrictions put in place due to a rise in Covid-19 case numbers this winter, the company’s financial prospects could deteriorate.

At the present time, ITV shares trade on a forward price-earnings ratio of around 13 using the current year’s earnings per share forecast. The firm is then expected to produce a 17% annualised rise in earnings over the next two financial years.

Although this may be insufficient to allow the company’s share price to recover to its five-year high, it suggests that ITV may offer good value for money relative to the wider FTSE 350 index at the moment.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.