The 2016 share press meltdown has made riveting viewing, if you like horror movies, that is. The body count may havefallen as markets have stabilised over the last couple of days, but markets remain fearful.
Yet not everybody has fallen victim to the serial share price killer. Broadcasters ITV (LSE: ITV) and SKY (LSE: SKY) have gamelystood their ground. Since that calamitous opening trading day onMonday 4 January, ITV has fallen just 1p to 268p, while SKY is actually up 2p to 109p.
Investors have been in no rush to sell these two stocks, clearly trusting intheir strong past performance and bright future prospects. The FTSE 100 may be down 8.5% over the past year but ITV is up 27% and SKY is up 24% over the same period. ITV is the clear winner over five years, during which time it grew 270%, against a 50% rise at SKY. The FTSEisflat over the same period.
One reason ITV has outperformed is that it surprised markets, in a good way. Many had written off the company, assuming it would fall victim to changing markettrends, such as the rise of the Internet, tough competition from digital TV companies (notablySKY), and slumping advertising volumes. Instead, it has risen to the challenge, notably through its successful ITV Studios global entertainment division, now entertaining the world with Poldark, Beowulf and, ahem, Autopsy USA. ITV also won big time with last yearsRugby World Cup.
One consequence of this success is that it is now expensive, trading at nearly 20 times earnings, and yielding a paltry 1.5%. I have written so many articles about stocks trading at single digit valuations and yielding almost double-digits that this comes as a shock. It is also testimony to investor faith in ITV. Broker Bernstein has just reiterated its overweight view and set a target price of 325p, up more than 20% on todays valuation. Futuregrowth should be driven by acquisitions and further production success in the US.
SKY is the limit
SKY is one of the most profitable media companies in the world, with revenues of 2.8bn in itslast reported quarter and operating profits up 10% at 375m. The companys success in the UK has been driven by Premier League, Sky Atlantic and its flourishing broadband business, but it is also making inroads in Europe, broadcasting the Bundesliga in Germany and theX Factorin Italy, following the recent merger with its sister companies in those two countries.
Again, investors pay a price for success, in this case almost exactly the same price as ITV a priceyvaluation of 19.5 times earnings, butwith a higher yield of 3%. SKY doesface a challenge on home turf with the emergence of BT Groupas a Premier League challenger, but it still remains the team to beat.
ITV and SKYs solid display in recent weeks point to a bright future, withmarkets confident that even if the economy slows, we will keep watching television.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.