Revival hopes boost ITV shares

ITV shares climbed after media analysis reversed dire predictions for TV advertising

ITV shares have climbed after an analysis of the media sector reversed previous dire predictions for television advertising.

The European industry report by Goldman Sachs upped its ITV rating from sell to buy and added it to a "conviction" list indicating a potential for high returns for investors - the first free television stock on this list since 2007.

ITV shares rose around 10% at one point, while other media stocks also saw gains as Goldman pointed to reassuring signs that decimated advertising revenues across the sector would start to pick up.

Events such as the World Cup and the general election could also help media firms, the report added.

Goldman said it now expects total UK advertising to grow by 2% in 2010, compared with its previous forecast of a 5% decline.

The reversal was particularly prominent for ITV1, which was expected to see a 7% slump in ad revenues next year but is now forecast to experience 2% growth.

"For 2010 we have increased our forecasts materially and now expect a return to growth in TV advertising in most markets and for TV to lose less share than over the last few years, as it has tended to recover strongly from a downturn," the report said.

Forecasts were based on the expectation of its economists that the UK recovery in 2010 would be slightly stronger than in France and Germany.

The report said ITV, which has seen its share value halve in a year, offered the potential for high earnings for shareholders based on stronger advertising recovery forecasts and the "significant" discount of the stock compared with other free-to-air firms.

Goldman said a potential move by regulators to relax the Contracts Rights Renewal (CRR) agreement, which protects advertisers from ITV abusing its dominant position in the UK television market, could also provide a boost from 2011.