Company Reports

Sky is the sole set-top box-based pay-television provider in New Zealand, with a satellite distribution platform covering the whole country. It has a grip on key content (especially sports), and its large subscriber base was relatively sticky until fiscal 2015, given limited home entertainment options.

Sky is the sole set-top box-based pay-television provider in New Zealand, with a satellite distribution platform covering the whole country. It has a grip on key content (especially sports), and its large subscriber base was relatively sticky until fiscal 2015, given limited home entertainment options.

Sky is the sole set-top-box based pay-TV provider in New Zealand, with a satellite distribution platform covering the whole country. It has a grip on key content (especially sports), and its big subscriber base was relatively sticky until fiscal 2015, given limited home entertainment options.

The coronavirus-muddied 3% fall in Sky Network Television’s fiscal 2021 adjusted EBITDA to NZD 186 million was 2% above our expectations, primarily due to more buoyant revenue of NZD 714 million versus our NZD 709 million forecast. However, we saw no reasons to change our forward projections, with our unchanged NZD 124 million EBITDA estimate for fiscal 2022 within management’s EBITDA guidance of NZD 115 million to 130 million.

Sky Network Television's second earnings guidance upgrade in less than three months presents somewhat of a double-edged sword for new CEO Sophie Moloney.

A recent investor day reinforced our view that Sky Network Television, or Sky TV, can evolve in a changing environment of content distribution. However, greater competition from subscription video on demand, or SVOD, players and Sky TV's competitive response through increased content offering are likely to lift programming costs over time. Sky TV guided for programming costs to rise to 35% of sales in fiscal 2016, from about 31% to 32% historically, and could potentially escalate to about 39% of sales in the longer term. Consequently, though Sky TV will continue to remain immensely profitable, we believe the outlook is negative for its earnings before interest, tax, depreciation and amortisation margin.

Sky Network Television, or Sky TV, is the only pay-TV provider in New Zealand, catering to nearly half of New Zealand's population. The company's existing dominance and scale, thanks to high market share and exclusive content, deters potential new entrants, providing the company with a sustainable competitive advantage and a wide moat. The company's business is reasonably stable and has, to a great extent, been immune to economic cycles, although there have been periods when subscriber acquisitions have slowed. This is testament to the firm's ability to provide superior content to viewers at a reasonable price, thereby ensuring that churn is kept to a minimum.

Sky Network Television, or Sky TV, is the only pay-TV provider in New Zealand, catering to nearly half of New Zealand's population. The company's existing dominance and scale, thanks to high market share and exclusive content, deters potential new entrants, providing the company with a sustainable competitive advantage and a wide moat. The company's business is reasonably stable and has, to a great extent, been immune to economic cycles, although there have been periods when subscriber acquisitions have slowed. This is testament to the firm's ability to provide superior content to viewers at a reasonable price, thereby ensuring that churn is kept to a minimum.

Sky Network Television, or Sky TV, is the only pay-TV provider in New Zealand, catering to nearly half of New Zealand's population. The company's existing dominance and scale, thanks to high market share and exclusive content, deters potential new entrants, providing the company with a sustainable competitive advantage and a wide moat. The company's business is reasonably stable and has, to a great extent, been immune to economic cycles, although there have been periods when subscriber acquisitions have slowed. This is testament to the firm's ability to provide superior content to viewers at a reasonable price, thereby ensuring that churn is kept to a minimum.

Sky TV's underlying net profit after tax, or NPAT, increased 10.8% in the first half of fiscal 2015 helped by falling depreciation and interest costs because of lower capital expenditure and debt levels. Earnings before interest, tax, depreciation and amortisation were flat compared with the previous corresponding period. Revenue grew by just 2% with core subscriptions down slightly offset by an increase in average revenue per user, or ARPU. We were anticipating a slight increase in subscriptions in the half year. Expenses were well contained with critical programming costs coming in at 32% of sales, largely consistent with previous periods.

Sky Network Television, or Sky TV, is the only pay-TV provider in New Zealand, catering to nearly half of New Zealand's population. The company's existing dominance and scale, thanks to high market share and exclusive content, deters potential new entrants, providing the company with a sustainable competitive advantage and a wide moat. The company's business is reasonably stable and has, to a great extent, been immune to economic cycles, although there have been periods when subscriber acquisitions have slowed. This is testament to the firm's ability to provide superior content to viewers at a reasonable price, thereby ensuring that churn is kept to a minimum.

We lift our fair value estimate for Sky Network Television, or Sky TV, to NZD 7.00 per share from NZD 6.50 reflecting the additional cash generated since our last update and a modest increase in our longer-term forecasts. At the current price, Sky TV shares appear modestly undervalued offering an attractive dividend yield of 5.8%. Our wide moat rating on Sky TV, reflecting the company's scale advantage given its near monopoly position in the New Zealand pay TV market, remains intact.

We lift our fair value estimate for Sky Network Television, or Sky TV, to NZD 7.00 per share from NZD 6.50 reflecting the additional cash generated since our last update and a modest increase in our longer-term forecasts. At the current price, Sky TV shares appear modestly undervalued offering an attractive dividend yield of 5.8%. Our wide moat rating on Sky TV, reflecting the company's scale advantage given its near monopoly position in the New Zealand pay TV market, remains intact.

Sky Network Television, or Sky TV, is the only pay-TV provider in New Zealand, catering to nearly half of New Zealand's population. The company's existing dominance and scale, thanks to high market share and exclusive content, deters potential new entrants, providing the company with a sustainable competitive advantage and a wide moat. The company's business is reasonably stable and has, to a great extent, been immune to economic cycles, although there have been periods when subscriber acquisitions have slowed. This is testament to the firm's ability to provide superior content to viewers at a reasonable price, thereby ensuring that churn is kept to a minimum.

Sky Network Television reported solid results for fiscal 2014 helped by falling operating expenditure and lower depreciation and interest expense. Underlying net profit after tax, or NPAT, lifted 25.8% to NZD 166 million. NPAT was about NZD 8 million above our expectation, mainly as a result of programming costs which were 31% of sales versus our expectation of 32%. The company benefited from a strengthening New Zealand dollar as the vast majority of programs are imported.

Sky Network Television, or Sky TV, is the only pay-TV provider in New Zealand, catering to nearly half of New Zealand's population. The company's existing dominance and scale, thanks to high market share and exclusive content, deters potential new entrants, providing the company with a sustainable competitive advantage and a wide moat. The company's business is reasonably stable and has, to a great extent, been immune to economic cycles, although there have been periods when subscriber acquisitions have slowed. This is testament to the firm's ability to provide superior content to viewers at a reasonable price, thereby ensuring that churn is kept to a minimum.

We have reviewed Sky TV's core subscription business and retain our view that it has lower growth prospects than in the past, as subscriber penetration has reached saturation point. However, we also believe there are good opportunities to lift the average revenue per user, or ARPU, as subscribers upgrade to MYSKY (a personal video recorder). This should support ARPU growth going forward. The upgraded MYSKY box will be available to subscribers in November/December 2014 and will contain enhanced pay-per-view and video-on-demand features. We are anticipating revenue to grow by 4.7% per annum on average during the next five years, mainly driven by ARPU growth. Sky TV's capital expenditure is also expected to decline during the next five years as growth in its subscriber base slows, reducing the need to purchase decoders. As a result, we expect cash flow to improve going forward, potentially increasing the prospect of a special dividend.

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.

Sky Network Television, or Sky TV, is in an unassailable position of being the only pay-TV provider in New Zealand, with a subscription base of 856,000, translating to 50% of New Zealand households. We believe the company's dominance is unlikely to end anytime soon, allowing it to earn healthy returns on capital. That said, the Internet is becoming a viable option for distributing content to subscribers, which could open the market to a whole host of competitors. We maintain our wide Morningstar Economic Moat Rating on the company, but with a negative trend to reflect the threat of the Internet. We increase our fair value to NZD 6.50 per share from NZD 6.00 per share due to the additional cash generated since our last update. We also lift our fair value for the Australian listed shares to AUD 6.00 per share (from AUD 5.00 per share) to reflect the change in our New Zealand dollar fair value and the sharp appreciation of the New Zealand dollar against the Australian currency. We view the shares as modestly underpriced, with the growth outlook not fully reflected in the firm's current share price.

Sky Network Television, or Sky TV, is the only pay-TV provider in New Zealand, catering to nearly half of New Zealand's population. The company's existing dominance and scale, thanks to high market share and exclusive content, deters potential new entrants, providing the company with a sustainable competitive advantage and a wide moat. The company's business is reasonably stable and has, to a great extent, been immune to economic cycles, although there have been periods when subscriber acquisitions have slowed. This is testament to the firm's ability to provide superior content to viewers at a reasonable price, thereby ensuring that churn is kept to a minimum.