UPDATE: Sky TV shares sink to 3-week low as drop in subscribers dents 2017 earnings outlook

Friday 6th May 2016

Sky Network Television shares sank 13 percent, making it the biggest decliner on the NZX benchmark index today, after the pay-TV operator said subscriber numbers are expected to fall further this financial year, causing earnings next year to miss analyst estimates.

The Auckland-based company forecast it would have 830,000 subscribers at the end of its financial year on June 30. Subscriber numbers dropped 1.5 percent last year to 851,561. It expects to lose 45,000 core residential pay-TV subscribers this year and gain about 25,000 subscribers for its online services such as Neon and FanPass.

Its shares fell 69 cents to $4.80, after earlier touching a three-week low of $4.75. They have dropped 25 percent in the past 12 months.

Sky TV retained its forecast for 2016 earnings, which it said in February would see net profit at the lower end of its previously advised range of $153 million to $158 million, down from $172 million last year. However, it said the loss of subscribers would "adversely impact" its 2017 earnings compared to current analyst consensus estimates. The company didn't detail the estimates. Analysts expect the company's net profit to fall to $155 million in 2016, and decline further to $146 million in 2017, according to the mean forecast in a Reuters survey.

The pay-TV operator is losing its dominant hold on premium content with the introduction of online streaming video services such as Netflix and Spark New Zealand's Lightbox offering. Still, it retains rugby rights, which are seen as a linchpin in securing domestic viewers. The company attributed the forecast loss in subscribers for this year in part to the roll-off of subscriber contracts following the Rugby World Cup in 2015.

It didn't expect the rate of subscriber loss this year to continue next year given customer departures are reducing due to the diminishing impact of the Rugby World, and because it expects a subscriber lift from upcoming major sport events including the Rio Summer Olympics in August 2016 and the Lions Tour in June 2017.

"It's been on the cards for quite some time that increased competition was going to have an effect on Sky TV and I think those numbers are now quite evident that has been the case and the company has lost a fair chunk of subscribers," said Grant Williamson, director at Hamilton Hindin Greene. "Investors are pretty concerned about it and they have obviously knocked that share price down pretty significantly.

"The announcement has proved that the company is having a pretty difficult time," he said. "They say that the bleed is not likely to continue which is probably right, you will always have the diehard subscribers that will continue, but trying to regain numbers, that is going to be a very difficult proposition. Where growth is going to come from, it's difficult to see and that's another reason investors are particularly worried," Williamson said.

Sky TV said it expects to provide an update on capital management and growth initiatives by June 30, after appointing investment bank Citigroup to provide advice. The company has previously said it is looking at capital management as it ends a period of investment, which it expects will deliver strong free cash flow in the future and at the same time, it's considering several investment opportunities.

The shares are rated an average 'hold' according to the mean estimate of seven analysts compiled by Reuters.

BusinessDesk.co.nz

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