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Sky results make Fox look stingy

The TV company has reported good numbers in an increasingly challenging market
July 28, 2017

As Sky (SKY) continues to defy the challenges of a difficult television market, Twenty-First Century Fox’s (FOXA) 1,075p-per-share takeover offer is looking increasingly stingy. Sky attracted 686,000 new customers in the year to June 2017. That's down on last year's 808,000 haul, but still very healthy. This rise, plus an increase in product take-up, helped like-for-like revenue growth hit 5 per cent. Fox’s offer now values the company on just a 1.9 times enterprise value to revenue multiple, well below peers.

IC TIP: Hold at 965p

That said, the encroaching competition of streaming services such as Netflix and Amazon may be showing. Customer churn increased to 11.5 per cent in the UK, well above the 10 per cent target. Meanwhile, extensive content spending – notably £629m more on Premier League rights – dented margins, meaning adjusted operating profits dropped by £97m to £1.5bn. But according to chief executive Jeremy Darroch, the “year of investment” is now over and operating profit and EPS both returned to growth (8 per cent and 19 per cent respectively) in the final quarter.

Analysts at Liberum say weakening ‘key performance indicators’ – including churn and average revenue per user – are a major concern for Sky, and the impending takeover is the only factor keeping shares afloat. But the current price is still a tenth below Fox’s offer, suggesting that investors aren’t entirely convinced that the deal – which is being reviewed by the European Commission on grounds of media plurality – will complete.

SKY (SKY)    
ORD PRICE:965pMARKET VALUE:£ 16.6bn
TOUCH:965-965.5p12-MONTH HIGH / LOW:1,050p748p
DIVIDEND YIELD:NAPE RATIO:16
NET ASSET VALUE:223p*NET DEBT:

162%

Year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20137.21.2660.730.0
20147.51.0352.532.0
201510.01.5279.132.8
201612.00.7563.133.5
201712.90.8061.4nil**
% change+8+7-3-
Ex-div:na   
Payment:na   
*Includes intangible assets of £9.6bn, or 556p a share
**Dividend suspended pending the outcome of the proposed Twenty-First Century Fox takeover