It’ll take something close to a miracle for ITV (LSE: ITV) to avoid being kicked out of the FTSE 100 next month. The FTSE index committee will announce the result of its latest quarterly review just a week today. Here, I’ll look at whether ITV shares could be a bargain buy for recovery. And whether the flying FTSE 250 stock set for promotion to the top index could also be a good investment.
The slump in ITV shares
ITV avoided flirting with demotion from the FTSE 100 in the summer index review when its shares were 84.86p. However, they’ve since slumped to 60.64p, wiping close to 30% off the company’s market value. As a result, it ranks 28 places below the cut-off point for automatic exit from the FTSE 100.
There was a time, less than five years ago, when the shares were more than 200p higher than today. ITV sat comfortably in the top half of the FTSE 100. My, how things have changed!
Could ITV shares be a bargain buy?
ITV was a popular dividend stock for a number of years. However, the Covid-19 pandemic put paid to that. In March, the company cancelled its 2019 final dividend. At the same time, it withdrew its previously announced intention to pay an 8p full-year dividend for 2020.
Furthermore, following its recent half-year results, investors may not see a dividend until 2022. The company said it has negotiated a relaxation of covenants with its lenders until December 2021, and agreed not to pay a dividend while the relaxation is in place.
The half-year results, which included a small profit, weren’t as bad as City analysts had led the market to expect. Importantly, the company is continuing to invest in ITV Hub, BritBox and programmatic advertising platform Planet V, as it pursues its transformation into “a digitally-led media and entertainment company.”
Management was unable to provide guidance on the financial outturn this year, but analysts have pencilled-in earnings per share (EPS) of around 8p. At the current share price, ITV’s price-to-earnings (P/E) ratio is a very-cheap-looking 7.6.
Legendary investor Warren Buffett has advised investors to “be greedy when others are fearful”. ITV’s recovery may take some time, but I’d be greedy with the shares at their current level. I rate the stock a ‘long-term buy’.
A flying FTSE 250 stock
The other part to Buffett’s advice above is to “be fearful when others are greedy”. Unlike ITV, investors have certainly been greedy in recent months for shares of B&M European Value Retail (LSE: BME). From a market-crash low of 264.1p on 1 April, they’ve climbed 80% to 475.2p. Promotion to the FTSE 100 looks nailed on, barring a catastrophe.
The company is a retailer of branded products at compelling prices. It sells food and grocery ranges, general merchandise products and seasonal goods. Its principal UK chains are B&M Bargain and B&M Homestores. Its equivalent in France is Babou. If you live in the north of England, you’ll also probably be familiar with its B&M Express and Heron Foods Convenience Stores chains.
The performance of this successful and fast-growing ‘pile it high, sell it cheap’ group has been strong through the pandemic. I don’t think a P/E of 15.8 on analysts’ forecasts of around 30p EPS for the current year is too pricey. With a prospective dividend yield of 2.2% into the bargain, I’m not fearful of rating the stock a ‘buy’.
The post Should you buy ITV shares with the company set to be kicked out of the FTSE 100? appeared first on The Motley Fool UK.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value and 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.
Motley Fool UK 2020