More on BSkyB
BSkyB: Q3 2005/6 results
BSkyB’s growth is increasingly coming from switching customers to more expensive services (multi-room and Sky+) rather than from growth in its customer base. Total direct to home (DTH) customer numbers are up 5% over an year ago (the same as growth over the previous year). Growth in the last quarter was just 0.5% over the previous quarter, which is a little worse than usual range.
Growth of Sky+ revenues was 86% and multi-room revenues were up 76%. There is plenty of room for growth as these services are currently taken by 18% and 12% of total DTH customers respectively.
Given that there are few costs associated with delivering the more expensive services, it is unsurprising that gross margin has significantly (4 percentage points to 61%) and operating margin improved 1.6 points to 21%.
We still remain concerned about the limits to growth in the subscriber base and possible competitive threats. However the good performance of Sky+ and multi-room services together with imminent launch of high definition TV (HDTV) services gives it several products that we expect to deliver considerable sustainable revenue growth from existing customers.
It is reasonable to assume that most customers will eventually switch to HDTV, given how that the average household has two or more TVs it is reasonable to assume that most BSkyB subscribers will take multi-room services as well. Sky+ is a fairly compelling service and should also eventually be taken by a high proportion of subscribers.
There is a significant competitive threat and last year Freeview’s growth was greater than BSkyB’s. However Freeview is a newer service which has not reached as great a proportion of its potential customer base so this does not necesarily mean that it is much of a threat to BSkyB.
Given these growth driver’s BSkyB’s looks like reasonable value on a PE of 14× 2006/7 earnings (at 521p) with a 1.7% yield.
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