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Sky's fortunes turn thanks to drama, football and new devices

The pay-TV and broadband giant benefited from content investment and international expansion
July 29, 2016

European and Premier League football, hit dramas such as Game of Thrones and new devices and services boosted customer numbers and product sales across the board at Sky (SKY) in the reported period. Strong demand, combined with a tight grip on costs, propelled the pay-TV and broadband titan's adjusted operating profits up 12 per cent to £1.56bn.

IC TIP: Buy at 917p

The sharp decline in Sky's statutory profits (see table) reflects £791m in one-off disposal proceeds last financial year, as well as costs related to the group's integration of Sky Italia and Sky Deutschland. Constant-currency sales climbed 7 per cent in the UK and Ireland as the group launched new services such as Sky Cinema - a digital film library that releases a new movie every day. Moreover, better programming and Bundesliga coverage helped the German and Austrian business to deliver its maiden operating profit. And the Italian segment grew its customer base for the first time in five years, as football fans tuned into Italy's football matches during Euro 2016.

Management expects to exceed its target of £200m in cost savings by 2017, and reach £400m by 2020. Broker Numis expects pre-tax profits of £1.30bn for the year to June 2017, giving EPS of 59.5p, rallying to £1.49bn and 68.4p in FY2018 (FY2016: £1.35bn and 63.1p).

SKY (SKY)
ORD PRICE:917pMARKET VALUE:£15.8bn
TOUCH:917-917.5p12-MONTH HIGH:1,180pLOW: 770p
DIVIDEND YIELD:3.7%PE RATIO:24
NET ASSET VALUE:201p*NET DEBT:181%

Year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20126.81.1952.625.4
20137.21.2660.730.0
20147.51.0352.532.0
201510.01.5279.132.8
201612.00.7539.033.5
% change+20-50-51+2

Ex-div: 6 Oct

Payment: 28 Oct

*Includes intangible assets of £9.16bn, or 533p a share