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SKY Television - The Cash Cow

 

SKY TV’s shares have been sold off heavily over the last three and a half years, hitting an all-time high of $6.95 per share in 2014 and currently sitting at $2.65 at the time of writing. People are concerned with the number of households moving to alternative offerings such as Netflix. It is worth pointing out that through 2012 and 2013 the analogue television signal was progressively switch off in New Zealand, this sent marginal buyers of SKY TV’s services kicking and screaming into the digital world, these buyers are now looking for a cheaper alternative. SKY’s revenue is still above where it was in 2013 and subscriber numbers above where they were in 2012. Yes, SKY’s current business model is under threat and they will need to adapt to this changing environment.

For me, the short term catalyst is going to be the rights for All Black Rugby. If SKY were to lose these rights many households would cancel their contract (including me). I feel that given the complexity of the contracts with Sanzaar and the wider rugby content distribution obligations, SKY is still the likely candidate. The material headwinds look challenging for SKY in the longer term. Short term, the cataylst could see the shares rerated.

Negotiations are expected to begin in April 2018, a win here for SKY will see their share price back to where they were trading prior to Amazon sniffing around with their documentary on the AB’s, which SKY helped them with. Will they be $7 per share again? Unlikely. If Spark, TVNZ, Amazon or Winston Peters want All Black Rugby, who is going to produce it? It would be easier to take SKY over, they are cheap enough.

This article was written by Jeremy Sullivan – Authorised Financial Adviser at Hamilton Hindin Greene Ltd. The article represents general information and does not constitute personalised financial advice. If you would like to know if the investments mentioned are suitable for you please contact your investment adviser. A secondary disclosure statement is available free of charge by going to www.hhg.co.nz or by calling 0800 10 40 50.

 

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