Top UK Stocks to Watch: ITV sees ‘positive trends’ emerge after tough 2020

ITV is hopeful it can get back on track as the UK comes out of lockdown, Domino’s Pizza remains as popular as ever, Vodafone prices the Vantage Towers IPO, WH Smith cuts its cash burn, and M&G is pleased with its performance during its first year as an independent company.

UK

Top News: ITV beats expectations and sees ‘positive trends’ in early 2021

ITV reported lower revenue and profits due to the disruption caused in 2020 by the pandemic, but said it performed better than expected and was encouraged by its outlook now that the UK roadmap out of lockdown is in place.

The UK’s largest commercial television network said revenue was down 16% in 2020 at £3.26 billion. Revenue from ITV Studios was down 25% as lockdown rules disrupted filming and productions, while Broadcast revenue was down 8% as companies cutback on advertising on traditional TV channels.

Adjusted Earnings before interest, tax, and amortisation was down 21% to £573 million, driven by a 43% decline from Studios and a 9% dip from Broadcast.

Adjusted earnings per share dropped 22% to 10.9 pence from 13.9p, while reported EPS plunged 40% to 7.1p from 11.8p.

ITV will not pay a dividend for 2020, having paid out 8.0p for 2019. ITV said it recognises the importance of payouts and that it intends to resume them ‘as soon as circumstances permit’.

‘While total revenues and profits were down our financial performance was ahead of expectations driven by a strong end to Q4 and our firm control over costs,’ said chief executive Carolyn McCall.

‘We are encouraged by the roadmap out of lockdown. We are seeing more positive trends in the advertising market in March and April and the majority of our programmes are now back in production. However, there remains uncertainty in all markets around the world with the potential risk of lockdowns, which if they materialise will affect revenues,’ she added.

ITV is increasingly confident going forward. About 90% of productions at ITV Studios have resumed and its hit shows are doing well. Love Island is now in 20 countries while Snowpiercer, made for Netflix, has recently been commissioned for a third season.

In terms of advertising, ITV said it expects total advertising revenue to be down around 6% in the first quarter of 2021, again driven by lower TV advertising but double-digit growth in adverts on its streaming services. ‘We are now seeing more positive trends, with March expected to be up around 8% and April expected to be up between 60% and 75%, with the four months to the end of April up between 5% and 7%,’ ITV said.

Where next for the ITV share price?

ITV shares have dropped over 6% in early trade. However, it found support on the ascending trendline dating back to late September.

The share price also remains above its 50 & 100 sma so the establish bull trend remains intact for now. 

The bears would need to break down support at 112p today’s low and trend line support in order to test the 50 sma at 110p. A break through this level could negate the current bullish trend. A move below the 100 sma at 100p could see the bearish movement gain momentum.

Any recovery would look to target the yearly high at 122p.

Demand for Domino’s Pizza grows during lockdown

Domino’s Pizza Group said sales, profits and cashflow all improved during 2020 as demand for pizza held up during the pandemic, prompting it to lift its dividend and launch a share buyback programme.

Sales rose to £1.34 billion in the year to December 27, up from £1.21 billion the year before. Like-for-like system sales jumped 10.3%, accelerating from 3.7% in 2019.

Underlying Earnings before interest and tax inched up to £109.0 million from £105.3 million, whilst underlying pretax profit edged up to £101.2 million from £98.8 million. Reported pretax profit increased to £98.9 million from £75.1 million.

Free cashflow improved significantly during the year after growing by 73% to £99 million, allowing Domino’s to cut debt by 26%, pay a total dividend of 9.1 pence for the year, and launch a new £45 million share buyback programme.

Domino’s said it is still aiming to deliver system sales of £1.6 billion to £1.9 billion over the medium-term. This will be driven by growing its delivery business, with around 95% of its UK orders now made online, and by opening 200 new stores. It said it is ‘turbo-charging’ the collection business that has been hit hard during the pandemic as people stay at home and is aiming to double its market share.

‘Trading in the current financial year has started strongly with exceptional trading over the new year period as we recorded our highest ever sales week. Our delivery business continues to perform very well, and collection remains at around 60% of 2019 levels,’ said the company.

‘We have demonstrated we have a flexible and robust business model that has been able to adapt to the uncertain and changing market conditions throughout 2020. The current trends and demand expectations, in addition to the investment in capabilities we have and are making, gives us confidence in delivering further operational and financial progress in the coming year,’ Domino’s added.

Domino’s shares were up 8.9% in early trade at 338.1.

WH Smith shares rise as it reduces cash burn

WH Smith said it performed better than expected since the start of the year despite footfall continuing to suffer during lockdown, allowing it to reduce its cash burn.

The retailer said it now expects to burn through between £12 million to £17 million through January to March 2021, compared to the £15 million to £20 million range provided in January.

WH Smith said its High Street business has performed better than expected since the start of the year, with revenue in January down 26% year-on-year and just 16% lower in February.

‘Within our High Street business, we continue to see significant growth from our online businesses.  Our online greeting cards business, funkypigeon.com, saw record sales for the Valentine's day period,’ said WH Smith.

Its Travel business, encompassing stores at travel hubs like airports and train stations, has been harder hit. WH Smith said North America had continued to be its best performing market but overall revenue was down 65% year-on-year in January and 67% in February.  

The company also said it has secured an extension to some of its loans to give it more breathing space. Two £200 million term loans will now mature in October 2023 and new parameters have been agreed for covenant tests. WH Smith said this has allowed it to cancel an unused £120 million facility.

WH Smith will publish interim results on April 29.

WH Smith shares were up 0.6% in early trade at 1918.5.

Vodafone to value Vantage Towers IPO at up to EUR14.7 billion

Vodafone said it is targeting a valuation of between EUR11.4 billion to EUR14.7 billion for Vantage Towers, its towers infrastructure business that is being spun-off later this year through an initial public offering.

Vodafone said Vantage Towers shares will be priced between EUR22.50 to EUR29.00 per share under the IPO. The base offer size will see EUR2 billion worth of shares issued, but Vodafone said it can upsize the offer by up to 40% to EUR2.8 billion.

Notably, it has already secured some major investors. Infrastructure investor Digital Colony has become a cornerstone investor by purchasing EUR500 million worth of shares whilst another, global equity fund RRJ, will invest EUR450 million.

‘The Vantage Towers IPO is moving ahead at pace. Today's price range announcement is accompanied by the news that two leading global investors have committed to cornerstone our IPO with the purchase of EUR950 million of shares at the offer price,’ said Vantage Towers chief executive Vivek Badrinath.

‘Demand for data and connectivity across Europe is powering growth in the towers sector.  Our superior grid and leading market positions mean we are well placed to benefit from this growth and our recent financial results highlighted the good commercial and operational momentum across the business,’ he added.

Vantage Towers is expected to begin trading on the Frankfurt Stock Exchange ‘on or around 18 March 2021’.

You can find out everything you need to know about Vantage Towers and the IPO here.

Vodafone shares were up 0.1% in early trade at 126.18.

M&G delivers ‘strong and resilient’ performance in first year

M&G said it delivered a ‘strong and resilient performance’ during its first year as a standalone company despite ‘one of the most challenging operating environments ever’ amid the pandemic.

The company, which was spun-out of Prudential in late 2019, said it spent the year laying the foundations to return the business to growth by fixing its Retail Asset Management division and creating M&G Wealth following the acquisition of Ascentric.

Assets under management increased to £367.2 billion in 2020 from £351.5 billion in 2019.

Adjusted operating profit fell to £788 million from £1.14 billion while reported profit after tax rose to £1.14 billion from £1.06 billion.

Total capital generation fell to £955 million from £1.50 billion and its shareholder solvency II coverage ratio strengthened to its highest level since it became an independent business at 182%. M&G will pay a dividend of 12.23 pence for the year.

‘Our balance sheet has remained robust throughout the COVID-19 pandemic and capital generation was strong at £995 million for the year,’ said chief executive John Foley. ‘We remain committed to our ambitious three-year £2.2 billion target for total capital generation to the end of 2022 and to our current policy of a stable or increasing dividend.’

M&G shares were up 6.2% in early trade at 215.75.

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