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Investors Are Undervaluing ITV plc (LON:ITV) By 24%

In this article I am going to calculate the intrinsic value of ITV plc (LSE:ITV) using the discounted cash flows (DCF) model. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after May 2018 then I highly recommend you check out the latest calculation for ITV here.

Is ITV fairly valued?

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. To begin, I pulled together the analyst consensus estimates of ITV’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 8.3%. This resulted in a present value of 5-year cash flow of UK£2.31B. Want to understand how I arrived at this number? Check out our detailed analysis here.

LSE:ITV Future Profit May 28th 18
LSE:ITV Future Profit May 28th 18

Above is a visual representation of how ITV’s earnings are expected to move in the future, which should give you some color on ITV’s outlook. Next, I determine the terminal value, which is the business’s cash flow after the first stage. It’s appropriate to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is UK£6.55B.

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The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is UK£8.86B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of £2.22, which, compared to the current share price of £1.6795, we see that ITV is about right, perhaps slightly undervalued at a 24.21% discount to what it is available for right now.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For ITV, I’ve put together three pertinent factors you should further research:

  1. Financial Health: Does ITV have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Future Earnings: How does ITV’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of ITV? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St does a DCF calculation for every GB stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.