British Sky Broadcasting Group plc Ordinary 50p (BSY)

Company overview

The Group's core activity is the operation of a digital satellite television platform, broadcasting sports events, movies, entertainment and news in the UK and the Republic of Ireland. The Group owns and operates 11 channels, including Sky One, Sky News, Sky Travel, the Sky Sports channels and the Sky Movie channels.

HL Comment (31 January 2012)

The broadcaster's interim results continued to see the company announcing growth and progress. For the six months ending 31 December 2011, BSkyB reported a net profit of £441 million, up from £407 million a year earlier. Revenue was up 6% to £3.4 billion as gains in total customers and improving efficiencies in the business, made up for a 6% decrease in advertising revenue. The group, which is 39% owned by News Corporation, added 40,000 net new customers in the last three months of 2011. However, the figure was down sharply from the 140,000 net customers it reported in the same period the previous year and was below analysts' expectations of 58,000. Sky also announced it is to launch an online TV offering to non-Sky customers to enable it to take on competition from firms such as Lovefilm and Netflix. Launching in the first half of this year, the service will be aimed at the 13 million households who do not subscribe to pay TV.

Negative Points:

• Competition across the industry remains intense Sky's TV sales face growing competition with the launch in the summer of YouView, an internet-connected set-top box involving the BBC, ITV and BT. Furthermore, the recent expansion into the UK of Netflix, which allows customers to pay to download movies, and Amazon's Lovefilm download and rental business adds a further threat.
• The consumer environment continues to be challenging with government spending cuts and tax increases now being implemented.

Positive Points:

• The slowdown in growth in BSkyB's customer numbers was offset by an increase in the number of subscribers taking telephony and broadband services alongside their Sky television subscriptions.
• The group confirmed an improvement in product mix with more than three million customers subscribing to all three services being TV, broadband and telephony, up by 26% year on year.
• Sky announced it is creating 1,300 jobs over the next two years in the UK and Ireland.
• A on-going share buyback programme and a progressive on-going dividend policy provide further support.
• The board authorised a dividend of 9.2p per share for the period, up 5% from the previous year.

Consensus:

On balance, market consensus indicates a cautious buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.