Daily ShareChat: Sky TV

By Jenny Ruth

Monday 7th February 2011

Sky Network Television's business model is now reaching a level of maturity with penetration about 50% of households, say Deutsche Bank analysts Geoff Zame and Andrew Anagnostellis.

They expect Sky's debt to EBITDA (earnings before interest, tax, depeciation and amortisation) will approach one times during the year ending June 30.

"Sky's de-levered balance sheet is a function of operating growth and leverage, reducing capital intensity and a conservative payout ratio," the analysts say.

"It also reflects the highly cash generative, increasingly utility-like characteristics of its mature business model," they say.

"Given this balance sheet strength, we now expect our forecasts for consistent EPS (earnings per share) and DPS (dividends per share) growth to be supplemented by periodic cash returns to shareholders."

Zame and Anagnostellis have raised their 12 month target price from $5.50 a share to $5.84 and are forecasting the pay TV company will report a $60.7 million net profit for the six months ended December 2010, up 19.5% on the same six months of 2009.

"We do not expect any major surprises," they say. The expect key features of the result will include a rebound in advertising revenues from cyclical lows, lower transmission costs, ongoing operating and margin improvement and subdued subscriber growth, reflecting the soft macro backdrop and seasonality.

Recommendation: Buy.

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