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Sky‘s sales and customer retention under the spotlight

Published: 08:55 09 Oct 2016 BST

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Among the big guns reporting next week is satellite broadcaster Sky PLC (LON:SKY).

It will publish its first quarter results on Thursday (October 13), where investors will be keeping a keen eye on both sales and customers. The results also come amid rumours that biggest shareholder Rupert Murdoch’s 21st Century Fox may put in a bid for the group. Shares have added over 6% in the last two weeks and stand around 886.5p.

Last year, double digit growth in operating profit to £1.6bn, on increased revenues of £12bn, masked a more worrying trend that investors will be looking out for.

Although it brought in 800,000 new customers last year, the churn rate (the number of subscribers who left the service)  jumped to 11.2% in the UK -  a marked increase from the previous year’s figure of 9.8%.

It’s not hard to conclude that increased competition in recent years has affected Sky and its attractiveness to consumers.

The likes of Amazon Prime and Netflix are now commanding increased market share in the film space, while BT (LON:BT.A) is posing a threat to its dominance in the sports market.

As a result, Sky has been forced to increase its programming costs significantly, particularly with regards to acquiring the rights to various sportingcompetitions like the Premier League.

Analysts expect these costs to hit the bottom line too, claiming that it will struggle to pass on the extra costs to its customer base.

YouGov results are in...

Reporting full year results on Monday is also polling specialist YouGov (LON:YOU), which broker Peel Hunt rates as 'add' targetIng a price of 170p.

The group always opens an interesting window on the political and election world and the broker expects the company to have put in a strong second half, thanks to the US and Middle East regional performance, which in turn were driven by helpful forex translation (weak sterling).

Peel Hunt analyst Alex de Groote said he would be curious, particularly with the US Presidential election in full swing, how one particular innovation is faring.

"There is a new product, Profile, which we assume is also growing fast," said the analyst.

The question of Brexit also reveals its head again on Thursday when stationer and news agent WH Smith (LON:SMWH) posts its prelims.

The fourth quarter trading statement had confirmed that full year numbers were intact but that the summer had been a little more tricky for both travel and High Street, notes Peel Hunt, which recommends investors 'buy' the shares.

"In travel we will be interested to hear if Brexit or currency has made much of a difference not only to the reported period but also to the outlook. We can’t imagine that it has helped," said analyst John Stevenson.

"The pace of store roll-out and profit progression overseas is always of note and will ultimately drive the shares to a rerating. They do, however, feel a little lacking in catalysts right now," he added.

Acal takes to the stage

Among the smaller caps, electronics supplier Acal Plc (LON:ACL) takes to the stage with a first half pre-close update.

"We do not expect to be changing numbers at the pre-close, but there is upside potential in the second-half from cost-reduction initiatives, foreign exchange and also underlying trading, as we expect to see limited impact from the Brexit vote," said housae broker Peel Hunt.

It said the  outlook is suitably cautious and many markets are still challenging, but contract wins and cost cuts in first half point to improvement in the second half.

"The acquisition pipeline should still be healthy and the consolidation opportunity remains compelling," said Henry Carver, repeating a 'buy' and 315p targer (current price: 275p).

In July the group had noted that with around four-fifths of the group’s revenue generated outside the UK,  it expected the translation impact of sterling’s recent depreciation, if it is sustained, would more than offset any increased imports costs.

Also reporting interims this week is wound care medtech group Tissue Regenix Group PLC (LON:TRX).

Significant announcements expected

Monday

Vedanta Resources plc (LON:VED)

Tuesday

Ted Baker PLC (LON:TED)

Wednesday

Domino's Pizza (LON:DOM), Telford Homes (LON:TEF~), Fresnillo (LON:FRES), Marstons plc (LON:MARS)

Thursday

Sky plc (LON:SKY) (Q1), GAME Digital (LON:GMD), WH Smith (LON:SMWH),  Unilever plc (LON:UNLV).

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