Broker Snap: Strong rebound in TV advertising

KBC Peel Hunt expects a strong rebound in the UK television advertising market, and so has initiated coverage of ITV, stv and UTV Media with "buy" ratings for each.The broker's positive stance in the sub-sector is underwritten by the improving trading conditions, although it sees Britain's ITV and Scotland's stv as more attractive than Northern Ireland's UTV Media, given the latter's exposure to the Irish economy."We also set out our core national advertising revenue model for TV, which suggests national advertising revenue growth of around 3% in FY2011 [fiscal 2011] and (a conservative) 4% in FY2012," the broker said.Analyst Patrick Yau sees ITV's stock as undervalued relative to its European peers, but the company offers a "more focused cyclical upswing", reflecting the broker's positive stance on the company's strategy. "We believe that ITV offers a more focused exposure to the return to growth in the UK TV market as well as the longer-term turn-around opportunities as the new management strategy is executed," Yau said. The target price for ITV is 71p.Despite stv's long-running legal case with ITV regarding stv's payment for network programming, Yau remains positive on the group's prospects and likes "the company's new media initiatives." Yau says that although stv lacks ITV's scale and broader production base, it "does have a better-developed online strategy, both through its own websites and in partnership with content aggregators such as YouTube. The target price for the Scottish group is 186p.UTV is benefiting from a strong TV and radio performance around the World Cup that has continued into the third quarter. Unlike ITV and stv, UTV's revenues are predominantly made up of radio advertising revenues. However, Yau does not see growth prospects for independent local radio stations as the economic woes in the nation "could well start to erode the fragile recovery there - a situation we will monitor closely." The broker states a "cautious buy" with a target price of 187p.