More on BSkyB
BSkyB 2005 results
Sky’s revenues for the full year were up 11% in line with the first nine months, with growth picking up a little in the fourth quarter. The key growth drivers are continued growth in the total number of customers (6%) and sales of the more expensive Sky+ and multi-room services. New customers in particular are likely to take the more expensive packages.
The very low cost to Sky of generating these additional revenues means that its operational gearing is very high, and the revenue growth has driven much higher profit growth. Operating profit (before goodwill and exceptionals) was up 34% and EPS up 58%.
One thing that is particularly encouraging is that the rate of take-up of Sky subscriptions in total and of both Sky+ and multi-room subscriptions has increased. In the case of the latter two, this is to be expected as they are new services, however combined with the overall growth in subscriptions this suggests that there is more room for growth than we previously thought.
Churn is stable at 10.5%. This is in part a product of Sky’s dominance of the market.
Sky has launched a free to air service, free sat. This competes with Freeview (in which Sky owns a stake) but is wholly owned by Sky. This is clearly not part of Sky’s core business but should increase access to customers (by providing a Sky package that does not require subscriptions). This is a service that probably does not cost Sky very much and increases its visibility to non-subscribers.
Our main concerns are where growth will slow. Sky has very high penetration which makes growth in the total subscriber base difficult to sustain. This is partially addressed by growth in Sky+ and multi-room.
Longer term threats are more difficult to assess: in particular broadband internet will enable on-line sales of films and alternative access to live programming. However given the reluctance of film makers to use internet distribution, the still incomplete infrastructure and the commercial difficulties involved in making the transition are likely to make this threat very long term indeed.
At 559p Sky is on a prospective PE of 18× but with its medium term growth fairly secure and strong the PE drops fairly rapidly as we look further ahead. It has a dominant position and does not look likely to be threatened by either the terrestrial broadcasters, free view of the cable TV operators in the foreseeable future.
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