Three big City brokers have tipped British broadcasting and internet giant Sky PLC (LON:SKY) to more than double its share price after the firm held a capital markets day on Thursday.
The heavyweights – Deutsche Bank, UBS and Societe Generale – are all tipping Sky to break through the £13 per share barrier.
Brokers sat through seven hours of presentations, videos and updates from Sky bosses on Thursday, as the broadcaster rereleased that it was targeting “mid to high digit” overall growth in revenue.
It’s expecting “mid-single digit” growth from its UK business and “low single digit” growth in Italy. It expects the biggest impact to come from its German division, in which it is predicting “double digit” growth.
Deutsche was the most bullish of the three, setting a target price of 1,380p and reiterating its ‘buy’ recommendation, as it praised the numbers put forward.
“Guidance [from yesterday’s capital markets day] is a material step forward and gives us increased confidence that financial performance will continue to defy market concerns,” it said in a note today.
It added that Sky has a “history of conservatism” and so it would seem that it thinks these numbers could actually be at the lower end of what is achievable.
Looking at the trading multiples, Deutsche noted that the company trades at a discount to other peers, such as Disney and Comcast.
Like Deutsche, UBS also thinks that Sky has a habit of playing down the figures so as not to overpromise and under deliver.
“We think guidance is conservative and see potential upside to estimates from higher revenues, cost savings and lower capex.”
It added that the figures seemed low, especially given that Sky is about to launch a new mobile service and that possible benefits that should bring.
UBS repeated its ‘buy’ recommendation as well, setting a target of 1,310p for the stock.
The third heavyweight, Societe Generale, also reiterated its ‘buy’ recommendation of the stock and its 1,320p target price.
Following the capital markets day, it said “Sky is one of [its’ most preferred picks in the sector” and says it has a proven track record of “systemic and cultural innovation” which should stand it in good stead.
SG believes that “sports rights events risk is significantly lower now”, which will come as welcome news to investors after Sky ploughed billions over the last year or so to secure the exclusive rights to two football leagues: the Premier League and the German Bundesliga.
It also added in a note today that “the takeover possibility for Sky remains real”.
Broker Liberum took issue with nearly every one of the points above, as it maintained its ‘sell’ recommendation and 630p target price.
It called Sky an “odd sell” and questioned the company’s forecasted growth figures, as well as the information – or lack of – it revealed about is new mobile business.
“There may be particular concern about the lack of detail on the mobile pricing but also that Sky’s targets on revenue growth are predicated on double-digit revenue growth in Germany, which has always promised much but under-delivered,” it said in today’s research note.
Unlike SG, Liberum thinks that having to pay more for key rights deals is a definite possibility, while it’s not sure customers will have the appetite to take on all of these costs themselves.
“With key content costs rising due to increased competition and questions over future subscriber growth and consumers’ willingness to pay more, numbers will come under strain.”
It also took exception to SG’s suggestion that a takeover is in the pipeline for Sky, commenting: “We do not see a bid by 39% shareholder Fox coming through.”