Pay-TV giant Sky (SKY) provided a rare opportunity for investors to engage directly with its story at its capital markets day on 20 October but its messages are receiving a mixed response from analysts and the market - with the shares marked down 4% from their 19 October close to a current 820.5p.
Long-term bears like Berenberg and Liberum reiterate their ‘sell’ advice and respective price targets of 730p and 630p, while Numis stays at ‘buy’ with a £12.50 target.
BULLS RATTLED
Key topics included the opportunities for non-UK subsidiaries in Germany and Italy and a medium-term growth target in the mid single digits for the UK business. Berenberg notes this includes mobile which is not the case for the consensus forecasts something its says may have ‘rattled Sky bulls’.
Both Liberum and Berenberg were impressed by the style of the delivery but ultimately underwhelmed by the substance in the guidance from Sky’s senior management. Berenberg comments: ‘In the end, we heard nothing that fundamentally changed our view that Sky, while excellent at serving the customer, supports that excellence by constant investment.
‘While the company is doing a good job of taking certain costs out of the system, overall, we do not think it can meet medium- and long-term consensus estimates.’
STYLE OVER SUBSTANCE
Liberum concludes: ‘What Sky showed yesterday was many of its positive characteristics: it is a market leader, very well-run, is operated efficiently and, unlike many companies that face structural pressures, has always taken an approach to be ahead of the curve instead of burying its head in the sand?
‘However, in our view, it is still a sell? this is still, at its heart, traditional subscriber-based model, which relies on subscriber and/or ARPU growth (we do not think that NOW TV is more than c. 10% of the UK / Ireland customer base) and, with key content costs rising (we estimate 49% of its FY'17E costs will be programming costs) due to increased competition, and questions over future subscriber growth and consumers' willingness to pay more, numbers will come under strain.’
BRIGHTER FORECAST
Even Numis, while remaining positive, concedes sentiment towards a stock which is down by more than a quarter year-to-date may remain weak for the time being.
‘We view the -4% share price decline as harsh and while we do not expect sentiment to turn around quickly, believe continued operational delivery will see the shares rebound over the medium term’
