Interactive Investor

Sky in demand across Europe

29th July 2015 12:34

Harriet Mann from interactive investor

With dramatic investment transforming itself into a "content powerhouse", Sky has impressed with its full-year results as customers access higher-quality content from more platforms. Integrating its German and Italian acquisitions may hold the group back for a while, until the expected £200 million of synergies are felt, that is.

Driven by growth in the UK and Ireland, revenue jumped 5% to £11.3 billion, facilitating a 18% rally in operating profit to £1.4 billion and earnings per share of 53p. Management's confidence in the business has also given a welcome 3% boost to the full-year dividend, to 32.8p per share.

The group agreed to fork out a whopping £5.1 billion for exclusive coverage rights to Premier League football in the period, one of 35 sports deals over the last 18 months. Customers will also be able to watch live coverage of The Open golf championships and get their boxing fix from Matchroom Sport.

On the screen, Fortitude and 1992 were the first of its original dramas to be premiered across all regions simultaneously and a record number of people tuned in to watch the Game of Thrones finale. Momentum should continue into 2016 with The Last Panthers and The Young Pope, two of 35 new dramas scheduled for the next three years. But it's not all about the content.

Broadening the accessibility of its product across multiple platforms - TV, computer, smartphone - and investment into new products has paid off, too. Nearly two thirds of Sky customer homes are connected to Sky Box Sets, which helped generate more than 600 million views.

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Just under one million new customers joined in the period, 45% more than last year, and the percentage of customers leaving is under 10% in each market. In fact, the group achieved the highest organic customer growth in the UK and Ireland for 11 years, passing the 12-million customer milestone, with record new customer numbers in Germany and Austria, too. After three years of falling numbers, even Italy managed to keep its customer base stable.

The integration of UK & Ireland, Germany & Austria and Italy is going well, and synergies of £200 million are targeted by 2017. Revenue growth across Germany and Italy helped improve operating loss by 81% to £11 million and sales at Italy slid 2%. But it's the expected synergies that are keeping analysts at broker Numis bullish.

Paul Richards now reckons the shares are worth 1,250p, with the upgrade implying double-digit upside. He expects pre-tax profit to stay flat at £1.4 billion in 2016 and 2017, but profits should raise to £1.6 billion in 2018 as synergies come through, generating earnings per share of 74p. Shares in Sky initially jumped as high as 1,180p Wednesday, briefly breaking through technical resistance before unwinding to 1,122p by late morning, 18 times forward earnings.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.