Estimates Raised as Sky TV Declares Robust First-Half Results

Sky TV reported strong results for the first half of fiscal 2014. Underlying net profit after tax, or NPAT, rose 22.4% as a result of falling operating costs and lower depreciation and interest expense. Revenue growth remained muted at about 3% as the core residential subscription business grew by just 2.3%. Given the stronger-than-expected first-half performance, we lift our fiscal 2014 NPAT forecast by 4.5%, but leave our 2015 estimates intact. Our fair value estimate of NZD 6.50 also remains unchanged. We view the shares as modestly underpriced, with the earnings growth outlook not fully reflected in the firm's current share price. We maintain our wide Morningstar Economic Moat Rating, but negative trend and high uncertainty ratings, on the company, reflecting the fact that the Internet could be a viable threat to the firm's competitive position. Nevertheless, Sky TV generates very high return on capital and is expected to continue to do so in the future.