In a morning note to clients, the investment bank upgraded the ITV company's shares to "neutral" from "reduce".
The broker said there was an encouraging trend toward advertising on ITV for November and December and, although revenues would be down 12% year-on-year, the outlook for the year to September 2002 looked hopeful, and could improve profits by about £10m.
Merrill forecasts that ITV advertising will decline by 8% in the year to September 2002, instead of the 9.7% fall that it had previously expected.
The news follows recent reports that TV advertising was set to receive a boost in the run up to Christmas, as record label Universal Music said it was spending £12m to promote artists such as S Club 7 on ITV.
Last week, Carlton said it was to raise as much as £397m with a bond issue which would allow it to cash in shares in Thomson Multimedia -- the company to which it sold its Technicolor film processing unit at the end of last year -- four months early.
Following these announcements, Merrill estimates that Carlton's net debt at the end of 2002 will be around £320m compared with the current £790m.
Merrill has cut its 2002 pre-tax loss forecasts to £142m from £177m. For 2003, it has reduced its forecast to a loss of £33m from a previous forecast loss of £76m.
Carlton is due to announce its full-year results for the 12 months to September 30 2001 tomorrow. Merrill expects the company to report earnings per share of 13.3p.
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