Downgrade dents Granada, Carlton

ITV OWNERS Granada and Carlton Communications suffered a double whammy as Merrill Lynch slashed its estimates for ITV advertising revenues and shareholders fretted that the firms may be unable to complete a graceful exit from their loss-making ITV Digital venture.

Standard & Poor's also weighed in by downgrading Carlton's credit ratings. S&P cut Carlton's long-term rating to BBB from A-minus, and placed the firm on negative credit watch, citing concerns surrounding declining advertising revenues and the cost of financing ITV Digital. The downgrade will increase the cost of servicing Carlton's debt. The group had almost £600m of long-term debt at the end of its last financial year.

Carlton shares slid 4 1/4p to 187 3/4p, although Granada added 3/4p to 135 3/4p.

Merrill analyst Neil Blackley said ITV advertising bookings for December covering the peak Christmas market were 25% lower than last year's, compared with his earlier estimates of a 14% decline. He has cut his forecasts for Granada's 2001 earnings by 14% to produce a headline loss of £41m, or a profit of £110m before investment in ITV Digital.

Carlton suffered an even greater downgrade as Blackley cut his estimates by 25% to give a pre-tax loss of £177m, or a profit of just £11m before digital costs.

Speculation is rising that the two are seeking ways to close ITV Digital and sell its subscriber lists to BSkyB and cable groups NTL and Telewest.