Pay-TV giant Sky (SKY) falls 3.2% to 995p on a seemingly solid set of third quarter numbers. Revenue is up 5% to £8.72 billion with subscription revenue growing 4%, 177,000 net new customers are added and operating profit is up 12% to £1.14 billion.
The reason for the sell-off could be increasing churn in its customer base. In the UK churn increased by 60 basis points to 10.7% - the highest in 18 months - with Sky blaming the limiting of discounts to customers. Churn in Italy was up 130 basis points thanks to a loss of Champions League rights.
Liberum analyst Ian Whittaker, a long-term bear of the broadcaster, reiterates his sell recommendation and 530p price target. He comments: ‘Following the Vivendi/Mediaset deal we believe Vivendi are going to become a more significant competitor in Europe and we could see these higher churn rates persist as competition intensifies.
‘Our main concern is with Sky's long term profitability, we believe it will never reach the heights to justify the valuation as we believe there will be continuing pressures from programming cost inflation.’
A more positive view is put by Shore Capital’s Roddy Davidson who is a buyer with a £10.28 price target. ‘This release indicates a steady quarter - extending the positive momentum evident at the interim stage,’ is his take.