The Lemon Fool

SKY

I don't often recall seeing them with a HYP-ish yield.
Share price: -15% in last six months, -27% last 12 months, barely changed in last 3-5 years.

Historic yield: 4.2%, covered 1.9x.
FTSE median: 2.9%.

Forecast to increase to 4.3% with slightly lower cover of 1.8x.

Long history of progressive dividend increases but rate of increase slowing in recent years.

Paid an awful lot of money (more than they would have liked) for football rights and that is expected to be the cause of the lower dividend cover and several percent drop in profits/EPS for the current financial year and a continued drag on profitability in subsequent years requiring cost-savings (according to management comments).

A lot of customers seem unhappy that to get the £27/month sports pack they have to buy another £20/month basic pack first.

SKY have a captive audience in the form of football fanatics but what happens when the next football rights come up for auction in a couple of years time?
What if BT is prepared to cough-up even more?
What are SKY left with if the footy is taken away, especially as most of their sports customers are being milked for extra ££ due to having to buy the basic package which they probably don't want?

So should we just add SKY to our HYP and plead strategic ignorance, or should we worry about the slowing dividend growth, weakening cover and the risk of competitors outbidding them for the football rights next time?

BT63 wrote:
SKY have a captive audience in the form of football fanatics but what happens when the next football rights come up for auction in a couple of years time?

The problem I've got with investing in SKY is that I know the above simply isn't true, given other options available to watch football over the internet.

As more and more people discover that fact, I think the risk to SKY's business-model increases.

Cheers,

Itsallaguess

and the risk of competitors outbidding them for the football rights next time?

This sounds similar to one of the persistent problems with rail companies. There's always the fear of a big fraction of one's business disappearing overnight. If that is something you can't live with - walk away from it and find something else.

Having said that, SKY overbid last time (most commentators thought so) I can't imagine BT wanting to up the price even more, for it woud become their disaster them. So maybe the fanchise is safe?

I'm never quite sure why people bother with SKY anyway. The only part I would like to have is Sky Arts, and I believe you have to buy an incredibly expensive package to get that. Why would I do that when there's so much free TV - too much to watch most weeks. So, for me, SKY doesn't make sense - but then that's me being out of step with millions of other people.

My old marketing professor at university (when was it abbreviated to the odious, lazy and banal "uni"?) used to preach:

Content is king! But brands aren't a bad second.

Those forced to buy content will never be more than royal bum wipers. So, I would rather own Man U than Sky, I would rather own Burberry than Marks, I would rather own Unilever than Tesco, I would rather own Disney then Cineworld, I would rather own AstraZeneca than Boots ( were they still around)

Just a thought.