The market was impressed by BSkyB’s May Day Q3 results, and where the broadcaster managed to defy the pundits by reversing the generally negative sentiment ahead of the results into a very positive statement of the company’s health.
Indeed, investment bank Morgan Stanley, in a “good news” report to clients on May 2nd, revised their forecasts for BSkyB’s full year results up by 3 per cent and a 17 per cent improvement in Earnings Per Share for 2014-15 and 2015-16. “Notably, Sky is making good progress with (i) its connected TV strategy, with a further 600,000 connections in Q3 (base 5 million), (ii) with new services (roll out of AdSmart, 100 per cent growth in transactional rental y-o-y and ‘buy and keep’ launch) and (iii) in content (17 new sports deals ytd and five of the top 6 movie studios re-signed in the last two years).”
The bank distilled what it saw as the key elements in the Sky’s results, and stressed that the 74,000 subscriber net additions was only just shy of the 77,000 achieved in the pre-Christmas period, and this without much focus on subscription growth in its marketing efforts. “Sky’s Q3 marketing was focused on new entertainment services (box sets, Sky Store) rather than on traditional TV subscription marketing. It was also a relatively light quarter for the marketing of broadband. Despite this, subscription product growth at 760,000 was good (the bank had estimated 637,000), up y-o-y (Q3 FY13 715k) and maintaining the momentum of the last three quarters (715k-873k),” stated Morgan Stanley..
“Our forecasts already incorporate three key assumptions. (i) The next Premier League rights run for three years starting 2016/17 to 2018/19. We assume that Sky pays 40 per cent more in the next rights round, raising the price from £760 million pa to £1064 million pa. (ii) We assume that Sky will not reinvest the c£70 million pa cost of the Champions League. Although offset by c£20 million pa lower advertising revenue, this partly defrays the effect of the higher EPL cost forecast. The Champions League cost falls away at the end of 2014/15. (iii) We assume £500 million pa of buybacks out to FY18: BSkyB has had share buybacks totaling £1750 million over the last three years, and our forecasts assume a continuation of a £500 million pa [share] buyback.