BoAML: BSkyB growth to slow in Q2

BSkyB is expected to announce Q2 TV additions of 55,000 customers (vs 140,000 last year), at a churn rate of 10.3% (vs 9.5% last year), according to the Bank of America Merrill Lynch (BoAML).

The bank forecasts HD figures of 130,000 (down 60%) and 35,000 for multiple-room – though the report says there are longer term risks from Sky Go/YouView substitution.

BoAML also expects “robust growth in communication products driven by Sky’s value proposition” – with broadband adding 150,000 customers (vs 204,000), talk 150,000 customers (vs 187,000) and line rental 220,000 (vs 269,000).

Subscription growth to slow given price freeze

“We expect total customer ARPU of £537 (Q1 £535), with growth constrained by the September price freeze. We expect subscription revenue growth to slow from 7.3% in Q1 to 4.8% in Q2 (and to 4% for the full year), and total revenue growth of 5.3%.

“We forecast Q2 operating profit of £301 million (full year £1226 million) and earnings per share (EPS) of 12.1p.”

Consensus forecasts remain too high

“Our 2014 estimate EBIT is 8% below the consensus, reflecting:

1) fibre migration / subscriber acquisition costs (SAC);

2) the consumer slowdown and our belief that 2008/9 overstated Sky’s defensive qualities, resulting in higher churn, lower gross additions and lower (high margin) HD, MR and advertising revenues than the consensus;

3) our expectation that YouView and other smart TVs will, at the margin, be a net negative for Sky given the constraint on satellite pricing and growth.”

Headwinds for both Sky’s multiple and earnings expected in H1

“We downgraded BSkyB to neutral in December and continue to see headwinds for Sky’s earnings given concerns around football, macro risks, fibre migration costs and increased competition from new entrants/connected TVs.”