BoAML forecasts Sky Q1 revenues to grow 9% to £1.658m

The Bank of America Merrill Lynch (BoAML) expects Sky’s growth to continue, despite the overall TV market slowing in this “tough consumer environment”.

“We forecast robust growth in communication products driven by Sky’s value proposition, the benefits of a single bill and Sky Anytime+,” BoAML’s forecast said.

The bank predicts Q1 net TV additions of 25,000 customers (vs 96,000 last year) based on a churn rate of 11.2%, which will remain flat year on year – and gross additions of 311,000 (vs 374,000).

BoAML forecasts HD figures of 80,000 (compared to 215,000 last year); 160,000 broadband (vs 178,000); 160,000 talk (vs 203,000) and 225,000 line rental additions (vs 260,000).

Strong growth in profitability

“We expect ARPU to grow 5% to £542 with increased product penetration of the base and the residual impact of last September’s price rise more than offsetting the VAT impact from the closure of the Sky Magazine.

We expect Q1 revenues to grow 9% to £1,658 million (cons £1,636 million), with faster growth in programming costs (+10%) given the launch of Sky Atlantic.

With lower SAC and upgrade costs partially offset by Sky Go investment, we expect marketing costs to fall 8% and forecast total costs to grow c7%. We forecast continuing operating profit of £293 million (+15%, 17.7% margin, cons c£290 million), net profit of £202 million and EPS of 11.6p (cons 11.4p).”

European Court of Justice (ECJ) concerns misplaced

“While press reports suggest the ECJ ruling was a victory for pubs/clubs, they cannot show foreign TV services without infringing the Premier League’s copyright. Residential customers can (legally) take a foreign TV subscription, but we would expect very few (non-expats) to do so given limited, if any, savings (the Greek service is actually more expensive than Sky), language differences and the loss of Sky’s other content (sports, movies and basic channels); HD; Sky GO; Sky Anytime+; and triple play savings. We have a Buy rating on Sky, given defensive, secular growth and growing shareholder returns.”