Lord Leveson wrapped up his long-running enquiry into media ethics last month, an investigation that media baron Rupert Murdoch will be glad to see the back of. His News of the World was at the heart of the phone-hacking scandal that sparked the enquiry and meant the end of his ambitions for News Corp, the main Murdoch company, to buy the 60.8 per cent of British Sky Broadcasting it didn't already own.
- Stranglehold on UK sports coverage
- Ongoing cost-saving programmes
- New NOW TV service targets non-subscribers
- Large cash returns to shareholders
- Proliferation of competitive platforms
- No chance of Murdoch bid
BSkyB's shares have spent much of the year since the deal collapsed in the doldrums. That's largely because News Corp won't be able to mount a bid while the Murdochs remain in control. That means that the bid premium - BSkyB said it would't sell for less than 800p a share - has evaporated.
But other concerns have dogged the shares; in particular, worries about the escalating cost of the rights to televise English football and the growing willingness of competitors, such as BT, to challenge for the rights. Indeed, the £760m a year BSkyB will pay for a package of 116 Premier League football matches marks a 40 per cent increase on the price of its current deal. Overall cost inflation is closer to 70 per cent given that BSkyB won fewer 'first pick' matches this time around. BSkyB got 20 first picks, down from 38 in the previous auction. BT, meanwhile, got 38 matches, including 18 first picks.
However, City analysts reckon that BSkyB's stranglehold on sport means it will be able to horse trade with BT, whose priority is to get the best content to support its roll-out of superfast broadband. And the completion of the auction for football rights means that at least investors know the financial impact. Besides, analysts point out that the 8 per cent cut to BSkyB's trading profits, which the extra £230m cost would represent, is likely to be offset by cost savings elsewhere. Indeed, efficiencies meant a 6 per cent cut in operating costs last year, even though subscriber numbers climbed by 312,000 to 10.6m.
BRITISH SKY BROADCASTING (BSY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 720p | MARKET VALUE: | £12bn | |
| TOUCH: | 719-720p | 12-MONTH HIGH: | 775p | LOW: 614p |
| DIVIDEND YIELD: | 4% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 56p | NET DEBT: | 93% | |
| Year to 30 Jun | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 5.71 | 1.19 | 51.0 | 19.4 |
| 2011 | 6.60 | 1.01 | 43.5 | 23.3 |
| 2012 | 6.79 | 1.19 | 52.6 | 25.4 |
| 2013* | 7.15 | 1.43 | 54.6 | 27.3 |
| 2014* | 7.52 | 1.51 | 58.3 | 29.1 |
| % change | +5 | +6 | +7 | +7 |
Normal market size: 4,000 Matched bargain trading Beta: 0.5 *Peel Hunt forecasts (profits and earnings are not comparable with historic figures) | ||||
That scale underpins BSkyB's ability to invest both in acquiring new sports coverage - such as an enhanced deal for Formula 1 motor-racing that snapped up half the BBC's contract with the F1's rights holders - and in a wide array of new content and services. For example, a large chunk of last year's £457m capital spending was to 'unbundle' telephone exchanges to improve its broadband network. Of its subscribers, 3.4m now take its 'triple play' package (TV, internet and telecoms), 21 per cent up on the year. The average number of products per subscriber rose from 2.5 to 2.7 in 2011-12, lifting average revenue per user £10 to £548, despite a price freeze. Importantly, BSkyB has also responded to the rapid growth of download TV services, such as LoveFilm and Netflix, with the launch of its own 'over-the-top' service, NOW TV, at a cost of £30m. The new service is important - it allows BSkyB to target the 14m UK households that don't subscribe to pay TV.
Yet BSkyB's cash-generative qualities mean there's plenty left for shareholders. Revenue growth in 2011-12 may have been a modest 4.5 per cent on a like-for-like basis - well below the 16 per cent reported in 2010-11 - but cash profits increased 12 per cent to £1.56bn. That underpinned the return of £1.1bn to shareholders in dividends and share buy-backs; £100m is still to be returned under a £750m tranche of buy-backs, and a new £500m programme is likely to be approved at the forthcoming annual meeting. And management has kept its promise to pay 50 per cent of net profit in dividends, which rose 9 per cent last year.
