Special Feature
Thus the 5% increase in revenue fed through to a 15% increase in operating profits for the nine months to the end of March.
Share buy-backs helped translate this into an even larger increase in earnings per share with a 24% boost to 37.8p. The following graphic shows the nine month financial performance:
Buybacks completed so far come to £387m with £750m planned which is not insignificant relative to the £12bn market value of the group i.e. around 6% of the market cap. The dividend yield at around 3.5% shows that Sky has matured into a cash cow provided it can maintain its pre-eminent content position relative to competitors.
If TV subscription starts to fall investor sentiment would turn. However, with the group having performed well despite the UK’s rising unemployment we believe trading will get a boost when the UK economy finally turns. The competitive threat from the internet is real but in our view not a mainstream threat.
Summary and valuation Sky’s results were overshadowed by a possible forced sale of News Corp’s stake and some relatively minor hacking at Sky News. The media regulator is currently seeing if Sky is fit and proper to hold a TV licence which could mean that News Corp is forced to divest its stake. The yield for the next financial year (12 months to end June 2013) is just under 4% and the forecast P/E comes in at 12.9X. This doesn’t look expensive but is dependent on Sky retaining traction with its subscribers.
52 | www.financial-spread-betting.com | June 2012
Accordingly, SKY will remain firmly held in the Fat Prophets portfolio.