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Stock Strategist

BSkyB's Narrow Moat Intact Despite BT's New Sports Channels

We think the market is overly concerned about the competition.


Our meeting with  British Sky Broadcasting Group (BSYBY) CFO Andrew Griffith confirmed our view of the company's narrow economic moat and our belief that the market has overreacted to BT Group's launch of its sports channels. This isn't the first time BSkyB has faced new sports channels, and its sports content remains far superior to that of BT. BSkyB also dominates content in other areas, and we think this superiority will allow the firm to continue to grow.

We believe BSkyB's shares are slightly undervalued, though still in 3-star territory, as the market appears to be pricing in significant market share losses at the hands of BT. Despite BT's entrance, we continue to expect BSkyB to increase revenue close to 5% annually and return to steadily improving margins after a slip this year, owing to the higher cost of the new Premier League contract. While 9 times forward enterprise value/EBITDA is on the high side of the historical trading range for pay television operators, BSkyB's forward price/earnings of 15 times seems reasonable, especially with the possibility of 21st Century Fox potentially trying to once again acquire full control.

Allan C. Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.