Sky flies as UK customer subscriptions soar

29th Jul 2015 09:09

(ShareCast News) - First full-year results from Sky after the merger with its Italian and German arms were solid and in many places better than the market expected thanks to impressive UK pay TV and broadband subscription levels.An outstanding fourth quarter in the UK and Ireland saw the highest annual organic customer growth in eleven years.Shares in the company quickly flew higher, before falling midway through the session as some analysts trimmed their forecasts for future years due to higher Germany football cost inflation, before the shares bounced back again later.One trader told Sharecast/DigitalLook: "I wonder if that's as good as gets for now with BT Sport having Champions League football and an enhanced Premier League package for the new season."Across the group, Sky increased revenue 5% to £11.3bn in the 12 months to 30 June, in line with consensus forecasts, with management's focus on limiting cost rises helping adjusted profit before tax rise 6% to £1.2bn and adjusted earnings per share (EPS) down 2% to 56p, both ahead of the consensus.As the UK and Ireland customer base sailed past the 12m milestone, the fourth quarter delivered revenues up 6% to £7.8bn and operating profit up 12% to £1.4bn, with UK Pay TV subscriptions increased by 113,000 and broadband up 96,000 - both more than generally forecast.Germany saw net additions of 55,000 as revenues rose 11% and a much trimmed operating loss, while Italy suffered a net 21,000 subs decline with revenues down principally due to the absence of Champions League football, which the UK arm faces this coming year, but operating profits surprising on the upside.Both businesses Germany increased customer loyalty, thanks to what management said was a continued investment in the "customer experience", with Germany also delivering its highest-ever customer growth and Italy maintaining its subscriber base in a tough market."It's clear that the steps we have taken to broaden out our business are paying off," Darroch said. "By distributing our content over multiple platforms and launching new products and services, we are now able to offer something for every household." Across the group, he said almost 1m new customers have been added over the year, 45% more than the prior year. "Looking ahead, we see an expanded opportunity for growth by serving the market broadly with multiple products and services. The investments we have made have given us a strong platform on which to build and we have a clear set of plans to deliver long-term growth and returns for our shareholders."Analysts expect stable 2016 and eye catalystsGoldman Sachs said the UK performance supported its view that "Sky's innovation and the connected box strategy is working".The bank sees 2016 as being likely to benefit from a larger than usual price increase (+4%) "and we believe all players are incentivized to price rationally given increased investment".Goldman added: "We expect a stable 2016 performance despite the loss of CL rights."Noting that the shares had outperformed more than 10% relative over three months, Investec analyst Steve Liechti said that while the figures look more or less in line, "flagged profit growth is not as fast as at 9M given tougher comps/investment".2016 estimates look ok, he added, but 2017 consensus forecasts may reduce slightly given Germany costs.He retained a 'reduce' rating given increasing competitive pressures in a consolidating European market with cost pressures a drag, though potential Fox bid, positive Ofcom ruling on BT Openreach are potential positive catalysts.