Bank predicts BSkyB connected TV surge

Investors already benefitting from BSkyB’s buy back scheme should be further buoyed by a major report from investment banker Morgan Stanley, which gives the pay-TV broadcaster a share-price target of 827p (Oct 3 price is 751p), and this target is well ahead of the 776p high-point of the past 52 weeks. The bank also highlights three key new areas of revenue growth for Sky.

The bank’s sentiment has also been improved by a slew of positive news stories over the past month or so, not least securing the English Premier League TV rights for the next three seasons (starting 2013), and a couple of extremely satisfactory regulatory investigations, a price rise that hasn’t caused too many anxieties and the decision that BSkyB is a “fit and proper” operation to hold broadcasting licences.

Moreover, the bank’s view is that BSkyB is “recession resilient” and capable of organic revenue growth with just 32 per cent of its subscribers taking Sky’s ‘triple play’ offering. There are also three new “high margin” revenue streams in the shape of retail to non-Sky customers (NOW TV), wholesale content on an OTT basis, and its new (July 27) Parthenon content distribution arm. Indeed, this Parthenon deal ties in nicely with Sky’s significantly increased spend on its own original content.

These new areas on revenue growth are appealing, says the bank: “(i) The advent of a new connected TV market through YouView and the launch of BSkyB’s NowTV subscription-free OTT offering allow it for the first time to use its quasi-fixed cost base of programming in the Freeview market. Over time this potentially will allow it to access the 10 million homes presently using Freeview as their primary set (assuming these shift to YouView). This is a £46 million incremental revenue opportunity at high margin by FY2016 on our numbers. (ii) Sky’s wholesale deal with Talk Talk TV shows there is a similar opportunity in wholesale delivered OTT – we have another £48 million of high margin revenues by FY2016 here. (iii) Sky’s expanded own content effort – it is spending £600 million on UK generated programming by 2014 – gives it an opportunity to generate third party sales.”

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