Sky faces Premier League risk, says Credit Suisse

The forthcoming English Premier League auction poses significant risks for BSkyB, according to Credit Suisse, which has maintained the pay TV operator’s previous ‘underperform’ rating in its latest note. 

Assessing BSkyB’s plan to consolidate the German and Italian Sky-branded platforms under the Sky Europe banner, Credit Suisse said German growth prospects looked good but that it remained cautious about the Italian market, where Sky Italia faces strong competition.

Regarding the Premier League threat, the bank said: “We think Sky and BT will go into the FAPL [Premier League] auction with the same aim, i.e. to acquire the majority of packs. We think the only bullish outcomes for Sky would be (i) Sky and BT both decide against bidding aggressively; or (ii) Sky lodges a “blockbuster” bid to buy six out of seven packs, in an effort to force BT out of the wholesale content market. We see neither as likely and continue to model a 60% increase in Sky’s FAPL costs for five packs.”

Credit Suisse said it expected Sky to resist the call by broadcasters in the UK for distributors to pay retransmission fees, but said that if they are forced to do so, the cost to distributors could total £400 million over the next decade.

Credit Suisse raised its price target for the UK operator from 600p to 630p, but maintained its underperform rating.

Despite being bullish about prospects for Sky Deutschland, Credit Suisse reduced its target for the German operator from €8.70 to €8.00 in a separate note, based on an expectation of lower ARPU and higher programming costs in the near term.

“As the sole provider of premium pay TV in one of the most under-penetrated markets in Europe, Sky Deutschland is one of the few secular growth stocks in European Media. We continue to expect the platform to deliver 6.6 milliosubscribers and close to €1 billion of EBITDA by 2020, up from 3.8m and €27 million in fiscal 2014. We highlight that if BSkyB expects £200m of run-rate cash synergies by 2017 from the acquisition of Sky Deutschland and Sky Italia, some of the economic value of these synergies will benefit Sky Deutschland minorities. We include nothing for this in our forecasts today,” the bank said.

Credit Suisse said it was “possible” that BSkyB could pay a premium to take the shares of minority shareholders in the operator, but that nothing was likely to happen on this front until after the English Premier League auction.