New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Sky Network Television / Equity Bottom-Up

<h2>Sky TV</h2>
FY20 guidance – Not afraid to invest
Sky TV (SKT) has guided to FY20 revenue down -3-6%, and EBITDA (like-for-like) down a substantial -32-40%.
Whilst it was clear SKT’s earnings were going to fall, the extent of cost increases and therefore the magnitude of the EBITDA decline has surprised us. The margin of forecasting error was always very high. SKT is a largely fixed cost business, facing declining revenue, and investing to try to stay relevant in a disrupted, and now global, industry.
The lift in cost has come across: (1) organisational change including restructuring and rebranding, (2) content and production, including rights from and support for sporting bodies, &amp; (3) the acquisition of Rugby Pass. We understand around one-third of the cost increases are one-off in nature. &nbsp;
The market was already well aware of the substantial uncertainty of SKT’s near and long-term earnings given the pressures on both revenue and costs. The guidance highlights how aggressive SKT is now being in its attempt to position itself as NZ’s home of sport in a streaming world. Even if SKT is successful in achieving this outcome, the economics of what “success” looks like remain highly uncertain.
FY20 guidance
<table class="table table-striped"><colgroup><col> <col span="3"> <col> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 90.6pt;"></td>
<td style="text-align: center; width: 48pt;">2019</td>
<td style="text-align: center; width: 48pt;">IFRS 16</td>
<td style="text-align: center; width: 48pt;">2019 adj</td>
<td style="text-align: center; width: 59.4pt;">2020 Forbar (IFRS 16 adj)</td>
<td style="text-align: center; width: 56.4pt;">2020 guidance</td>
<td style="text-align: center; width: 48pt;">yoy % chg</td>
</tr>
<tr>
<td>Revenue</td>
<td style="text-align: center;">795</td>
<td style="text-align: center;"></td>
<td style="text-align: center;">795</td>
<td style="text-align: center;">796</td>
<td style="text-align: center;">750-770</td>
<td style="text-align: center;">-3-6%</td>
</tr>
<tr>
<td>Opex</td>
<td style="text-align: center;">554</td>
<td style="text-align: center;"></td>
<td style="text-align: center;">514</td>
<td style="text-align: center;">509</td>
<td style="text-align: center;">560-600</td>
<td style="text-align: center;">+10-18%</td>
</tr>
<tr>
<td>EBITDA</td>
<td style="text-align: center;">241</td>
<td style="text-align: center;">40</td>
<td style="text-align: center;">281</td>
<td style="text-align: center;">260</td>
<td style="text-align: center;">170-190</td>
<td style="text-align: center;">-32-40%</td>
</tr>
</tbody>
</table>
Source: Company reports, Forsyth Barr analysis
Matt Henry CFA Director / Senior Analyst, Equities Forsyth Barr Limited
T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 (9) 368 0115 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 (9) 368 0092 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; PO Box 97, Auckland 1140 W: &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; <a href="https://foundry.smartkarma.com/www.forsythbarr.co.nz" target="_blank" rel="noopener">www.forsythbarr.co.nz</a> Twitter:&nbsp; @forsythbarr

Sky TV
FY20 guidance – Not afraid to invest
Sky TV (SKT) has guided to FY20 revenue down -3-6%, and EBITDA (like-for-like) down a substantial -32-40%.
Whilst it was clear SKT’s earnings were going to fall, the extent of cost increases and therefore the magnitude of the EBITDA decline has surprised us. The margin of forecasting error was always very high. SKT is a largely fixed cost business, facing declining revenue, and investing to try to stay relevant in a disrupted, and now global, industry.
The lift in cost has come across: (1) organisational change including restructuring and rebranding, (2) content and production, including rights from and support for sporting bodies, &amp; (3) the acquisition of Rugby Pass. We understand around one-third of the cost increases are one-off in nature. &nbsp;
The market was already well aware of the substantial uncertainty of SKT’s near and long-term earnings given the pressures on both revenue and costs. The guidance highlights how aggressive SKT is now being in its attempt to position itself as NZ’s home of sport in a streaming world. Even if SKT is successful in achieving this outcome, the economics of what “success” looks like remain highly uncertain.
FY20 guidance
    



2019
IFRS 16
2019 adj
2020 Forbar (IFRS 16 adj)
2020 guidance
yoy % chg


Revenue
795

795
796
750-770
-3-6%


Opex
554

514
509
560-600
+10-18%


EBITDA
241
40
281
260
170-190
-32-40%



Source: Company reports, Forsyth Barr analysis
Matt Henry CFA Director / Senior Analyst, Equities Forsyth Barr Limited
T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 (9) 368 0115 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 (9) 368 0092 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; PO Box 97, Auckland 1140 W: &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; www.forsythbarr.co.nz Twitter:&nbsp; @forsythbarr

Sky TV: FY20 Guidance – Not Afraid to Invest