Daily ShareChat: Sky TV

By Jenny Ruth

Sunday 29th August 2010 3 Comments

Sky Network Television is in danger of developing "an embarrassment of riches" with an extremely under-leveraged and inefficient balance sheet with estimated gearing of just 12% by June 2014, says Sarndra Urlich, an analyst at First NZ Capital.

Sky isn't in the mature stage of its life cycle but its ever-increasing operating cashflow and a normalisation of capital spending is likely to yield a free cashflow surplus in the order of $190 million for the year ending June 2014, Urlich says.

Comparing the pay TV company with its peers implies it could easily take on an additional $300 million to $400 million in debt, she says.

"Even better, Sky has the capacity to [tax efficiently] gear up its balance sheet through increasing its payout ratio from 60% to 100%, paying out a special dividend .. and by undertaking a share buyback," she says.

"By our estimates, Sky could combine all of these measures and still maintain a robust balance sheet."
The key challenge though is Sky's 43.7% major shareholder News Corp isn't "renowned for returning capital to shareholders, preferring to grow rather than shrink its asset base."

Something needs to be done to engineer a more efficient balance sheet. "The alternative, of course, is that this embarrassment of riches makes Sky a very attractive corporate target."

Recommendation: Neutral.

Comments from our readers

On 30 August 2010 at 11:01 am terry said:

no wonder they have an abundance of riches when they feed us the same old movies etc over and over again. they are not spending on new programmes .

On 14 September 2010 at 5:43 pm Alex said:

Seriously thinking, why not go to Freeview, perhaps with a tivo, to miss the ads. $60 a month, would pay for a lot of rental movies a month. nOt much else on Sky, Living channel screened a 1999 Property Ladder recently

On 1 January 2011 at 9:56 am Neil said:

Sky has a wide moat with the big advantages of an and running system, the expense of replicating it and the growing amount of cash being churned out.