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Sky delivers impressive first half

Intense competition sees costs mount at the telecoms and broadcast giant
January 26, 2017

It was with some confidence that chief executive Jeremy Darroch delivered Sky 's (SKY) half-year results. The group added 500,000 new customers in the first half, reported its fastest revenue growth in three years and recorded its highest ever on demand viewing figures. The group's share price didn't jump, but that's understandable given the recommended offer from its major shareholder, Twenty-First Century Fox.

IC TIP: Hold at 1004p

Investment in content has been the focus at Sky, and is one of the main arguments for the Fox takeover, as newcomers such as Netflix (US:NFLX) and Amazon's (US:AMZ) Prime product encroach. The launch of the new Sky Q set-top box helped carry the number of UK and Irish households using the company's broadband service to over 6m. Original content enticed new TV customers, and Christmas Day saw viewing figures up 30 per cent year on year. But the hugely competitive domestic marketplace has sent customer churn up 140 basis points to 11.6 per cent, against a 10 per cent target.

The integration of Sky Italia and Sky Deutschland into the enlarged group added £218m of operating expenses, but £200m of cost synergies from these businesses has been achieved six months earlier than anticipated. Customer growth is strong in both of these geographies, meaning losses in Germany and Austria narrowed in the reported period, while operating profit in Italy more than doubled.

At the group level underlying operating profit fell 9 per cent, largely due to the additional £314m spent on Premier League rights. Justifying this cost is increasingly difficult. Football viewing figures are down - Mr Darroch suggests this has something to do with the relegation of his beloved Newcastle United from the Premier League - and yet Sky has paid more for broadcasting rights than it ever has before. TV and film will thus be crucial to the group's future progress. From 2018, its TV service will be available without the need for a satellite dish: a move that could give access to a further 2m homes.

 

SKY (SKY)

ORD PRICE:1,004pMARKET VALUE:£17.3bn
TOUCH:1004-1005p12-MONTH HIGH:1,134pLOW: 748p
DIVIDEND YIELD:2.1%PE RATIO:27
NET ASSET VALUE:204p*NET DEBT:208%

Half-yearto 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20155.7241421.012.55
20166.4137718.8nil**
% change+12-9-10-

Ex-div:na

Payment:na

*Includes intangible assets of £9.33bn, or 543p a share

**Dividends suspended pending the outcome of Twenty-First Century Fox takeover proposition