Could bid speculation push BSkyB’s shares even higher? David Stevenson reports.
What is BSkyB?
British Sky Broadcasting Group is the largest pay-TV broadcaster in the UK and Ireland. It supplies news, films, entertainment and sports channels as well as pay-per-view events, internet and telecoms services. BSkyB now has over 10 million customers, served by 16,500 employees.
What’s the history?
Sky began with four free-to-air TV channels via satellite in 1989. BSkyB was formed a year later as subscription services started. Sky Sports kicked off in 1991, and a ÂŁ304m deal for exclusive live coverage of the new FA Premier League was signed soon afterwards. In 1994, 17% of the company was floated on the UK and US stock exchanges. Fast growth in both the quantity of channels provided and subscriber numbers followed, with HD (high definition) and broadband packages being offered in 2006.
Who runs BSkyB?
Chief executive since 2007 is Jeremy Darroch, formerly the firm’s top finance man. Last year he took home ÂŁ2.7m – including a ÂŁ1.7m bonus – a 15% rise on the previous year. Current chief financial officer is ex-Rothschild investment banker Andrew Griffith, who got ÂŁ1.24m, 17% more than before. But the base salaries of both men “remain below market levels”, says BSkyB’s remuneration committee. Chairman and former CEO is James Murdoch, son of media mogul Rupert Murdoch, whose News Corporation has a 39% stake in BSkyB.
How’s business?
At first glance, fine. Revenues for the nine months to March rose by 14%, while operating profits jumped 24%. But there are also signs of growth slowing. Average revenue per user was up just 8% while fewer new pay-TV subscribers signed up. And ‘churn’ – the percentage of subscribers quitting – rose to 10.4%. “The environment is a bit more difficult,” admits Darroch.
What’s next on the Sky menu?
All the current talk is of when – and how much – BSkyB’s biggest shareholder, Murdoch’s News Corporation, will bid for the 61% of the firm it doesn’t own. Murdoch offered 700p a share last June, but must now get approval from the culture secretary, Jeremy Hunt, before upping the ante with a fresh bid. Selling off Sky News is likely to be part of the deal. Some independent shareholders are demanding up to ÂŁ11 a share from News Corp, but they may wait in vain – “I don’t see Murdoch going much north of 850p”, says Nick Goodway in the Evening Standard.
The analysts
Of 25 analysts surveyed by Bloomberg, 28% are bulls, 60% say ‘hold’ and 12% ‘sell’. Most bullish is Nomura’s Matthew Walker; he sees the shares rising 25%. Biggest bear is Giasone Salati at Execution Noble who sees a 20% slide. But most forecasts are in a narrow range either side of today’s price; News Corp’s offer is “dominating the thinking of both shareholders and analysts”, notes the FT’s Ben Fenton. Our view: BSkyB looks fully valued on the fundamentals. A new bid could push the stock higher, but there’s not much to go for.
The numbers
Stockmarket code: BSY
Share price: 842p Market cap: ÂŁ14.8bn
Annual sales (current year estimate): ÂŁ6.4bn
Net assets (last stated): ÂŁ821m
Net debt (last stated): ÂŁ1.2bn
P/E (current year estimate): 20.7
Yield (prospective): 2.5%
Largest shareholder: News Corporation (39%)
Directors’ dealings
Several BSkyB directors have been buying via the company’s share plan over the last year, as listed below. There’s also been some ‘open market’ buying; last August Jeremy Darroch bought almost 60,000 shares and Andrew Griffin snapped up 22,601. Interestingly, no director selling has been seen over this period.
Director and share plan buys
David Evans: 1,191
Nicholas Ferguson: 876
Andrew Higginson: 713
Allan Leighton: 2,953
Jacques Nasser: 1,059
Dame Gail Rebuck: 831
Daniel Rimer: 4,562
Lord Wilson of Dinton: 890
Category: Investing in Technology