Investment banker Morgan Stanley, in detailed report to clients, say that Sky Deutschland’s results reinforced its belief that its shares are worth €10 and that 2014 should be a “strong operational year” for the broadcaster. “[There is a] huge potential in the market,” says the bank, adding that its €10 price target is based on Sky Deutschland achieving just 30 per cent pay-TV penetration.
“Germany, with [about] 42million TV households, is potentially the largest pay TV market in Europe. German pay TV penetration is just c15 per cent, versus 50 per cent plus in France and the UK and 27-35 per cent in Spain and Italy, but is now developing fast. There are clear signs of appetite from German consumers for pay TV with Sky Deutschland, the cable operators and HD Plus all reporting strong demand for HD services,” says the report.
Morgan Stanley says that while Sky Deutschland’s guidance for the year is to add 400,000-450,000 net subscribers, but states: “Indeed at one point CEO Brian Sullivan intimated that the numbers could go higher than this range. Sky Deutschland has got off to a good start in January. The numbers will benefit from the migration of Ligatotal adds, lower churn, the exclusivity on the Bundesliga and marketing initiatives including the use of pop up Skylabs in shopping centres and a reversion to outbound telesales, albeit on a smaller scale aimed at selling two year contracts to qualified leads.”
And the bank suggests 2015 also looks good. “Sky was also upbeat about the prospect for further strong growth in net additions in 2015. The headwind in that year will be the absence of the 70k-80k Ligatotal! migrants that will help the 2014 numbers. On the positive side 2015 will have a full year benefit from the two year contracts, which are reducing churn as well as lower underlying churn and the continued benefit of Bundesliga and Champions’ League exclusivity. CEO Brian Sullivan comments ‘we expect another strong growth year in 2015.’ Commenting on the 24 month contracts at a later stage he pointed out ‘this is one of the reasons we are so confident on 2015 growth as well.’”