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Sky TV shares sink to two-month low as dividend cut disappoints investors

Wednesday 28th February 2018

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Sky Network Television shares fell to a two-month low after the pay-TV operator halved its interim dividend, retaining cash after cutting the price of its most basic product as it gears up for what may be an expensive battle to retain rugby broadcasting rights. 

The stock dropped as low as $2.54 and was recently 7.5 percent lower at $2.59 after Auckland-based Sky TV's board declared an interim dividend of 7.5 cents per share, half what it paid a year earlier. The company also announced cheaper entry-level packages in a bid to slow the tide of customers ditching its service in favour of online streaming video alternatives. 

Chief executive John Fellet said the company needs a strong balance sheet to successfully renew key content deals coming up, and preferred to repay debt instead of return cash to shareholders to meet its competitive challenges. The company's $300 million banking facility is subject to a number of covenants, including interest and debt cover ratios, and Sky TV said today that its price cuts may trigger an impairment charge on the value of its $1.4 billion intangible goodwill. 

"The cut in dividend is something that won't help investors," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch. "Regaining the rugby rights is going to be the big item for Sky on the horizon and it (the lower dividend) gives them more firepower in their talks." 

Last year, global internet giant Amazon was rumoured to be interested in bidding for rugby broadcasting rights, a key attraction for Sky TV which it has previously been willing to protect through the courts. Sky extended its contract with the New Zealand Rugby Union and SANZAR unions in 2016 for another five years and has in-house production capability that would be hard to replicate. The company is now preparing for negotiations over what happens beyond 2021.

Williamson said Sky's existing dominance in domestic rugby coverage may give it an advantage in negotiations, because "as far as I can see you can't just pick and chose to take All Blacks rights". 

Sky TV's Fellet says increased rivalry from video streaming companies is driving up the cost of programming in what he described today as "the age of 'peak content'," although the company managed to trim programming costs 8.1 percent to $166.9 million in the six months ended Dec. 31. 

The broadcaster cut its bank debt to $190.8 million as at Dec. 31 from $254.6 million a year earlier, while increasing free cash flow to $81.7 million from $68.4 million. Sky TV's net debt to equity ratio shrank to 19.7 percent as at Dec. 31 from 24.2 percent a year earlier. 


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