OTT downgrade for BSkyB
April 11, 2012
By Chris Forrester
A report from analysts at Bank of America/Merrill Lynch (BoAML) has marked down pay-TV broadcaster BSkyB to “underperform”. The bank suggests that the growing threat from Over The Top viewing and similar content downloading will create further competition for Sky.
The report suggests that these new OTT players (such as LOVEFiLM and Netflix) have a lower barrier to entry as far as content supply is concerned, along with a better user experience.
The bank also expresses concern about the – as yet unlaunched – YouView service (an OTT service from a consortium led by the BBC) and whether YouView (and the other OTT players) will “cannibalise” BSkyB’s higher-tier subs.
The bank’s conclusions are in part motivated by a report from GfK, commissioned by BoAML, which suggests that pay-TV growth is now – more or less – over, and that Sky will have to work hard to avoid subscriber losses. This could mean an increased use of profit-damaging discounts, says the report.
Consequently, BoAML has trimmed its longer-term earnings numbers for BSkyB, by 20 per cent. As a result, BoAML suggests a price objective for BSkyB of just 640p (trimming 6.5p off Sky’s April 11 share price). This means that Sky has slipped over the past five trading days from 680p, to April 11’s close of 647p.
These low prices are still attractive – to Sky itself, which on an almost daily basis is buying in its own stock for cancellation. BSkyB’s 52-week ‘high’ is 850p (and 52-week ‘low’ is 618p).