It seems like ITV (LSE: ITV) shares have been struggling for the reason that introduction of color TV. They’re down 51% in 5 years and 66% over a decade. But the FTSE 250 inventory’s up 15% prior to now month following renewed takeover hypothesis.

There’s a widespread perception that the broadcaster’s undervalued. So ought to I purchase some ITV shares in case they shoot a lot larger? Let’s have a look.

A disrupted trade

ITV’s endured a troublesome transition away from its reliance on linear TV promoting. That is in structural decline and ultimately heading the best way of the Dodo.

And whereas its push into streaming with ITVX has been fairly spectacular, it’s up towards formidable competitors within the form of deep-pocketed streamers like Netflix, Disney, and Amazon.

ITV’s Studios manufacturing arm is extra fascinating to me, despite the fact that it was lately impacted by the Hollywood strikes. It’s liable for international hit exhibits like Downton Abbey.

In addition to producing content material for ITV, it creates exhibits for different networks and streamers. In This fall, it’s set to ship The Higher Sister for Amazon Prime Video, Hell’s Kitchen for Fox, and Shetland for the BBC.

Trapped worth

The share price rose sharply on the finish of November when it emerged that a number of suitors had been desirous about launching a bid for ITV. Or at the least its Studios enterprise.

As AJ Bell funding analyst Dan Coatsworth lately identified: “Someone like Netflix could gobble up ITV for a fraction of its annual content spend and access its rich library of programmes.”

Certainly. Netflix spends about $17bn every year on unique content material, which dwarfs ITV’s meagre market-cap of £2.7bn (about $3.5bn).

Thoughts you, it will in all probability should cough up a bit greater than that, as Studios is “potentially worth more than the market value of the entire group,” in response to Coatsworth. This highlights how there may very well be trapped worth ready to be unlocked.

Low cost inventory

Now, there’s no proof that any streaming large’s severely desirous about buying ITV. Simply personal fairness up to now. But when ITV’s open to a bidding battle, then it’s believable certainly one of them may swoop in for the Studios bit.

On this state of affairs, I’d anticipate the share price to fly larger. In any case, at 72p per share, the broadcaster’s buying and selling on a ahead price-to-earnings ratio of simply 8.

I’ve typically checked out ITV’s low cost valuation and toyed with the thought of investing. It’s the form of rock-bottom valuation that implies all of the pessimism (declining TV enterprise, unsure streaming future, and so forth) is already priced in. After which some.

In the meantime, there’s a 6.8% dividend yield, with the possible payout lined 1.8 occasions by anticipated earnings. Am I speaking myself into investing?

The larger image

Within the 9 months to the top of September, group income was down 8% 12 months on 12 months to £2.74bn. And full-year Studios income is predicted to say no mid-single digits. So ITV’s hardly firing on all cylinders.

Stepping again, I don’t see the share price going anyplace except a bidding battle emerges. A streaming large getting concerned will surely assist. However I’m not eager to take a position primarily based on takeover potential alone.

As with an excellent ITV drama, I’ll be following any twists and turns as a curious viewer solely.