Broker snap: ITV tender offer implies EPS upgrades

20th Jun 2012 10:21

Panmure Gordon has reiterated its 'buy' rating and 125p target price for terrestrial broadcaster ITV following Monday's announcement of a tender offer.The group announced that it is tendering "up to £250m" of its outstanding bonds with near-term maturities (2014, 2015, 2017) in an effort to reduce debt and reduce future interest expense.Panmure analyst Alex DeGroote said in a research note on Wednesday morning: "We have pointed out for some time the mismatch between ITV gross debt and cash balances. In this context, this treasury action is very welcome."Successful execution of the tender offer means a £15m upside to full-year pre-tax profit (for the year ending April 30th 2013) due to reduced interest, DeGroote says, This equates to more than 3% upside to the earnings per share (EPS) estimate.With the group having strong cash generation - more than £1bn of cash on its balance sheet - the broker says that this will hopefully "persuade the market that ITV is more than just a play on advertising". It is also a major content player with more than a fifth of earnings coming from its Studios.The stock trading at a near-ungeared price-to-earnings ratio of eight and is on a free cash flow yield of around 12%. "We think there is significant valuation support at these levels," DeGroote said.Shares were trading 3.7% higher at 77p in mid-morning trade, with rumours circulating that Kohlberg Kravis Roberts (KKR) could make a bid for the group.BC