UK broadcast and internet giant Sky Plc (LON:SKY) revealed the details of its UK mobile offer yesterday, and brokers weren’t quite sure what they thought of it.
Sky will offer 1GB of data for £10 per month, 3GB for £15 per month or 5GB for £20 per month.
If you’re a Sky TV sUBScriber, unlimited calls and texts will be thrown into those deals at no extra cost. If you’re a non-TV customer, you’ll have to add another £10 to your monthly bill.
One of the more interesting features of Sky’s offering is that users can ‘roll-over’ their unused data, which should benefit those who occasionally go over their limit and incur hefty fees as a result.
Isleworth-based Sky reckons this new mobile division will be profitable on a standalone basis come the third full year of operations.
This implies that it is hoping to get just under 3mln customers on board generating revenues in excess of £1bn by 2020.
What the analysts think
The key issue amongst City brokers was that the offering looks decent but not overly radical, particularly the pricing strategy.
“We do not see the pricing by Sky as disruptive,” said UBS’s Polo Tang.
“We think the news will likely be a relief for the other UK mobile operators and expect the share prices of Vodafone and BT to nudge higher.”
Citigroup’s Thomas Singlehurst agreed, explaining that although competitive, the prices of the various deals were not “overly aggressive” and wouldn’t rock the industry’s boat like some had predicted.
Despite the issue with prices, most brokers agreed that venturing into the mobile space would ultimately be beneficial for Sky.
“If executed properly, mobile should…help Sky continue to grow in line with past trends,” claimed Julien Roch and Andrew Ross at Barclays.
“The company’s track record in delivering new products to customers is very good and therefore we see this as likely.”
Tang said he expects the division to boost revenues by more than 6% and revenues by more than 7% over the longer-term.
Ross and Andrew at Barclays reiterated their ‘overweight’ rating of the stock as well as their 1050p price target.
UBS’s Tang and Citi’s Singlehurst are both a bit more bullish about Sky, repeating their previous ‘buy’ recommendations.
Sky’s share price has fallen by more than 30% in the year-to-date and Tang, who has set a 1310p target for the firm, explains that this is one of the reasons for his upbeat outlook.
“We see this [de-rating] as overdone and from here we think earnings per share momentum is starting to inflect, mobile should lead to accelerating growth in the UK, and UK key performance indicators should start to normalise over the coming quarters.”