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Do ITV and BT share prices offer recovery potential?

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Technology, media and telecommunications companies ITV (LON: ITV ) and BT (LON: BT.A ) have seen extremely low share price performance in recent months. In fact, they are down 45% and 18% year-to-date, respectively, as investor sentiment has weakened.

Obviously, the uncertain economic outlook could affect their results in the short term. But in the long run, can they offer recovery potential based on wide margins of safety and recent quarterly updates?

ITV

As a cyclical business with a strong focus on economic performance, it is perhaps unsurprising that ITV’s share price has come under severe pressure in recent months. After all, consumer confidence is at its lowest level since records began in 1974 as the cost-of-living crisis looks set to intensify in the coming months.

However, the media company’s latest results show that it is doing relatively well. For example, total revenue increased by 8% in the first half of this year, as ITV Studios saw a 16% increase in sales and the company’s overall advertising revenue rose by 5%. While revenue was down 3%, this was partly due to increased investment in content, data and technology as key shows returned post-COVID.

The firm also made progress on its ambition to generate £750m in digital revenue by 2026. Its new streaming service, ITVX, is due to launch in the last quarter of the year. This could improve the company’s competitive position compared to other streaming services, as it is funded by advertising and is free for users.

With a net debt to equity ratio of just 35%, ITV has the financial wherewithal to weather a period of weak economic performance. Moreover, its net interest expense was covered by operating profit in the first half more than 13 times. This shows that it can withstand a fall in profits in the short term to benefit from a long-term economic recovery.

Trading at a forward price-to-earnings ratio of 5, ITV’s share price offers a wide margin of safety. In the long term, this appears to have significant recovery potential.

BT

BT’s share price has also been hit by uncertain forecasts for the economy. In response to exceptionally high inflation, consumers may try to switch to cheaper broadband and TV packages. And as many businesses face a tough outlook, they may try to cut telecom spending in the coming months.

The company’s recent quarterly results showed that it continues to show relatively disappointing financial results. Indeed, revenue in the first quarter of the year increased by just 1%, while pre-tax profit fell by 10% compared to the same quarter of the previous year. While the firm is making progress in areas such as keeping churn relatively low and rolling out its fiber offering, it’s hard to see a clear catalyst that will boost its share price.

Of course, there were rumors that the firm would become the object of a takeover. Meanwhile, its decision to form a sports joint venture with Warner Bros Discovery could improve its position in the market. However, despite its shares trading at a forward price-to-earnings ratio of just 7, there are more attractive risk-reward opportunities elsewhere in the FTSE 350.

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