Analysts assess Sky ahead of results and focus on Sky Q

Two banks have issued generally positive assessments of Sky ahead of its third-quarter results next week, with some caveats.

Analysts expect Sky’s main focus in the UK to be on its new Sky Q high-end set-top and service and existing customers. Goldman Sachs predicts that the pay TV operator will add 30,000 UK net TV subscribers, against 94,000 last year, along with 50,000 broadband subs, against 100,000 last year. The bank’s analysts expect a tighter discount policy and flat ARPU will lead to churn edging up to 10.5%, with the retentive power of Sky Q only kicking in at the end of the quarter.  The bank nevertheless expects revenue growth of 4.6%  and EBI:T growth of 11%.

In Germany, Goldman Sachs expects results to be hit by the rebalancing of growth away from two-year contracts to higher-quality one year contracts, with 75,000 net adds against the 102,000 added in the same period last year, 9.8% churn and a slight decline in ARPU to €35. In Italy, Goldman Sachs expects net additions of 15,000, with ARPU down 2% to €42 and churn at 10.5% , resulting in a revenue decline of 2%. The bank issued a buy recommendation.

UBS expects a quarter of stead growth, with a strong financial performance and moderate operating progress. It expects 5% underlying revenue growth of 5%, with solid growth in the UK and Germany offset by a decline in Italy. The UK is expected to drive EBI:TA growth of 10%.

UBS expects 65,000 customer net adds in the UK, including 400,000 TV adds and 50,000 broadband adds, reflecting a focus on promoting the high-end Sky Q box and reducing the level of discounting. Like Goldman Sachs, UBS predicts 75,000 customer net adds for Germany and a drop of 15,000 customers for Italy. It believes “a focus on value rather than volume” could deliver higher ARPU for all markets.

The bank said there was scope for a “relatively benign” outcome from the recent decision of the German Bundeskartellamt to force a split in the sale of Bundesliga rights, with Sky’s policy of distributing its content to all operators and relatively low pay TV penetration giving little incentive to rivals to overbid for rights.

UBS said it believes that Sky’s growth prospects have been underestimated and the stock is undervalued.