Strong KPIs show limited impact from BT Sport
BSY has delivered strong Q2 results. Financials were in-line with revenues +8%
underlying to £3,751m (cons £3,758m), adj. op profits -8.0% to £595m (cons £593m)
and EPS -3.5% to 27.3p (cons 26.8p). However, there was a strong beat on all KPIs
showing accelerating momentum and limited impact from BT Sport. Pay-TV net adds
were +77k (cons 60k) – the strongest quarter in three years. Broadband net adds were
+110k (cons +100k) – stable vs the prior quarter despite limited marketing. Churn was
10.8% vs 11.0% the prior quarter. BSY also saw strong growth in new products such
as Sky Go Extra (mobile downloads) with +258k net adds (after +212k in Q1).
Extending leadership in content
BSY has strengthened its position in sports with an early renewal of rights such as
British and Irish Lions rugby, England overseas international cricket and US PGA Golf.
BSY has also agreed an exclusive six year deal with HBO on Sky Atlantic and has
exclusivity on the new ITV Encore channel containing ITV’s top drama.
Step up in dividend a positive surprise
BSY has increased its dividend by +9% to 12p (cons flat at 11.0p) despite 2014 being
an investment year. We think this signals confidence in the business and should be
taken positively. We remain confident on our estimate of £1,231m of adj. operating
profit for 2014. However, consensus of £1,260m may marginally move nearer towards
our estimates with strong subscriber growth leading to higher upfront SAC/marketing
costs. However, the flip side is stronger subscriber growth suggests upside to consensus
adj. op profit of £1,360m for 2015.
Valuation: PT based on DCF
Results should reassure that growth at BSY will remain resilient despite competition
from BT Sport and we expect the shares to push higher today. BSY trades on near-to
trough multiples on depressed earnings on 14x calendarised EPS for 2014E falling to
12x in 2015E.