Advanced Television

Sky Deutschland under pressure

March 31, 2014

Investors are anxious that Rupert Murdoch-backed Sky Deutschland may suffer a slowing of subscriber numbers. The past month or so has seen a significant fall in Sky Deutschland’s share price. Back on February 2nd its share price stood at €7.75. Today’s opening price was some €6.36.

Last week investment bankers Morgan Stanley issued a note to clients, repeating its share price target of €10, admitting there were concerns about subscriber growth, and commenting on the 15 per cent fall in share price this year.  “We think this is in reaction (i) to the strong 2013 share price performance and (ii) to fears about underlying appetite for traditional pay TV in Germany, sparked by two lacklustre quarters of subscriber growth and by the development of OTT services – LoveFilm, Maxdome, Snap, Watchever and (shortly) Netflix in Germany.”

The bank’s note adds: “We now think Q1 net adds growth will be c45k, similar to the levels in Q1 2013 (42k). In Q1 2011 and 2012 Sky-D added 73k net adds but we can adjust this number for outbound telesales. Assuming this contributed c30k net additions in each quarter then the underlying number in both years was c43k.”

“We think the weakness in the Sky-D share price y-t-d already reflects underlying nervousness over the rate of subscriber growth. Net [subs] adds in both Q3 and Q4 2013 were viewed by the market as disappointing. With Sky-D valued mainly on a back end loaded DCF investors need to be confident that (i) that German pay TV penetration continues to get acceptance; (ii) that Sky-D remains the premium provider of pay TV; and (iii) it can continue to fund itself. We think that SkyD can deliver on all three counts. This view may not get common acceptance in the market until better net add growth starts to get delivered. On this basis the shares may mark time, potentially until the Q3 numbers are delivered on November 5th,” the bank states.

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