Tuesday preview: BSkyB, ARM, Babcock

30th Jan 2012 15:13

So-called 'triple-play' (pay TV, phone and Internet service provider) British Sky Broadcasting (BSkyB) updates the market on Tuesday on how it fared in the final three months of 2011.Credit Suisse, which is neutral on the stock, thinks the company faces multiple structural and cyclical headwinds in 2012."Our chief concerns are (i) tight UK household budgets and rising unemployment; (ii) the maturity of the core multi-channel television market; (iii) intensifying competition in movies from Netflix and Amazon; (iv) uncertainty on how much it might cost to renew the Premier League contract; and (v) the widening gap in broadband speeds vs cable," the broker notes. "Balancing this, Sky's strong market position, financial strength and record of innovation should make it difficult for new entrants to gain traction," Credit Suisse added.For the October - December quarter, the second quarter (Q2) of BSkyB's fiscal year, Credit Suisse expects 664,000 new customer sign-ups, including 84,000 net TV additions, "with aggressive promotion likely to mitigate tough trading conditions."On the high definition TV (HDTV) side, Credit Suisse plumps for 150,000 net additions, while the multi-room service is seen adding a net 40,000 new punters. The Swiss broker thinks Sky will add a net 130,000 customers to its broadband customer base, 120,000 new users to its telephony service and 120,000 new line rentals."We forecast revenues of £1,706m, EBIT [earnings before interest and tax] of £297m and EPS [earnings per share] of 12.1p. Sky bought back 11.7m shares during the quarter at an average 736p," Credit Suisse notes.Japanese broker Nomura Securities also recognises that Sky has a lot of challenges to negotiate in 2012 but adds that the company has done so successfully before."In our view the weakness of the economy is just something that will have to be accepted but should not prevent the company growing earnings and cash flow at good rates. The costs of offering fibre will depend on pricing (which we do not believe will be a subsidy) and take-up as well as the proportion of the transition fee Sky asks its customers to pay," Nomura says."Clearly Netflix and Youview represent new competition but Sky has successfully worked through these kind of issues before. Football is the real unknown, and we see the possibility of increased competition from Al Jazeera and ESPN. Serious interest from Apple and Google is possible but we think unlikely," the broker suggests. As for the second quarter numbers, "we estimate net TV adds of 55k, and c.140k in broadband and c.100k in HDTV," Nomura said."We look for H1 [first half] revenue growth of 5.9% to £3,374m, EBITA [EBIT + amortisaton] growth of 13.8% to £592m and EPS growth of 21% to 24.1p, with DPS [dividend per share] growth of 15% to 10p," Nomura revealed."Reported ARPU [average revenue per user] growth will be impacted by the price freeze and the impact of the growth in standalone broadband (we estimate c.£2 in the quarter and c.£11 in the FY) and so could come in around flat at £535. Advertising should be slightly down in Q2 and Q3," Nomura suggested. "We await more detail on the wifi/cloud strategy and on the terms on which Sky will offer fibre (from BT) to its customers. Given the company's earnings growth and return of cash prospects, we find the valuation compelling, while we acknowledge the drag from uncertainty especially on football rights," the broker concluded.Turning to chip-designer ARM Holdings, Nomura expects the flagship of the UK technology sector to report broadly in-line results "as the visibility remains high, especially in mobile, and the company has historically reported in-line or slightly above consensus expectations." The broker added that "below seasonal processor royalty revenue growth is anticipated, with expectations likely modest." Nomura sees scope for slightly weaker-than-expected licensing fees and revenues in its Physical Intellectual Property Division."Guidance [is] likely to follow historical norms with qualitative comments of growth 'at least in line with market expectations'. Management [is] likely to be upbeat on ARM's prospects of share gains in broadening end markets, which are unfortunately unlikely to get the market too excited. We do not expect specific guidance on smartphone trends or the more material opportunity in mobile computing," Nomura said.Babcock International, the engineering and support services firm, is trading not far off its 52-week high, which could explain the neutral view of the stock held by Panmure Gordon, even though the broker expects Babcock to issue a "confident update, backed by good contract win momentum of late."After the spate of contract wins, however, Panmure Gordon thinks the growth in the bid pipeline will slow from here."Prior year comparatives now allow for a full year of VT Group, and we anticipate synergies to be running in line with expectations. An update on the integration of recent contract wins and/or that of any potential US disposal may or may not be given at this stage," Panmure Gordon suggested.INTERIMSBritish Sky Broadcasting Group, Filtronic, Gold Oil, Mattioli WoodsINTERIM DIVIDEND PAYMENT DATEAlbion Income & Growth VCT, F&C Global Smaller Companies, Jupiter Second Split Trust Geared SharesQUARTERLY PAYMENT DATEJP Morgan Chase & Co, Middlefield Canadian Income PCCINTERNATIONAL ECONOMIC ANNOUNCEMENTSChicago PMI (US) (13:45)Consumer Confidence (US) (15:00)GFK Consumer Confidence (GER) (07:00)International Reserves (EU) (11:00)Unemployment Rate (EU) (10:00)Unemployment Rate (GER) (08:55)Q2British Sky Broadcasting GroupQ4ARM HoldingsFINALSARM Holdings, Ocado GroupANNUAL REPORTPXP Vietnam Fund Ltd.IMSSCarpetright, Phoenix IT GroupSPECIAL DIVIDEND PAYMENT DATEEuropean Investment TrustEGMSARC Capital Holdings Ltd.AGMSArmour Group, CareCapital Group, Intandem Films, JPMorgan Indian Inv Trust, Vatukoula Gold MinesUK ECONOMIC ANNOUNCEMENTSConsumer Confidence (09:30)GFK Consumer Confidence (00:01)Mortgage Approvals (09:30)Trends in Lending (09:30)FINAL DIVIDEND PAYMENT DATEEuropean Investment Trust, Schroder UK Mid Cap Fund, Topps Tilesjh