New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Sky Network Television / Equity Bottom-Up

<h2>Sky TV<br>Raised Expectations&nbsp;— Can Sky TV Deliver?</h2>
<div></div>
<p><strong>OUTPERFORM</strong></p>
<p>Sky TV (SKT) will report its 1H22 result on Thursday, 24 February, following what has been a stellar period of share price performance (&gt;50% over the last six months), an unusual set up for SKT.&nbsp;While it is still "cheap" by any traditional valuation metrics, we believe SKT will have to deliver on one or more of its key milestones related to subscriber revenues, programming costs and capital management in order to hold or add to its recent strong performance. We will be looking for (1) a continued slowdown in satellite subscriber losses, (2) some news around capital management, a dividend or expected dividend for FY22 and/or a potential share buy back program, and (3) continued strong cost control.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/258/629/original/image_52514355871645492180810.png?1645492180" class="editor-image img-responsive" data-smartkarma-image-id="258629"></figure>
<div>
<h3>After five long years&nbsp;— will subscriber revenues grow?&nbsp;</h3>
</div>
<div id="m_-8798465927043876255i0l0j">
<p>After three consecutive years of high single digit revenue decline in core satellite revenues we are looking for a meaningful&nbsp; improvement to negative -3.4% YoY in 1H22, driven by a combination of (1) largely flat average revenue per user (ARPU) and Sky Box subscribers down "only" 15k YoY and down 5k versus FY21. We will also look for commentary around what SKT's expectations are for both ARPU (how negative) and Sky Box subscribers (how positive) in relation to the announced shut down of Vodafone TV. Equally as important will be total subscriber revenues, which we expect to grow (very modestly at +0.8%) for the first time in five years driven by growth in streaming. Should SKT deliver on this, we believe it will be a clear positive catalyst for the stock.&nbsp;&nbsp;</p>
</div>
<div>
<h3>Outcome of capital structure review</h3>
</div>
<div id="m_-8798465927043876255i7bp4">
<p>SKT reiterated&nbsp;in December that it is&nbsp;undertaking a capital structure review&nbsp;which will be presented on February 24.&nbsp;We are expecting an NZ 10cps full year dividend but have relatively low confidence in our forecasts.&nbsp;We believe a&nbsp;meaningful dividend and forward guidance of growth in that dividend would be taken most positively&nbsp;by the market. A meaningful share buy back program of &gt;10%&nbsp;of shares outstanding would likely also be well received. We would view a special dividend with no accompanying&nbsp;commitment to meaningful ordinary dividend to likely be a net negative given our heightened&nbsp;expectations. No news or postponement of the review would be a clear negative, in our view.&nbsp;&nbsp;</p>
</div>
<div>
<h3>Savings and&nbsp;re-investments. One offs and recurring. Relative and absolute&nbsp;</h3>
</div>
<div id="m_-8798465927043876255itv4h">
<p>SKT has guided in detail for material additional cost savings in relation to both programming costs and non-programming costs of NZ$40–45m on a recurring annualised basis. Offsetting these cost savings is a substantial increase in programming costs due to the full year impact of the NZ Rugby rights deal, as well as the reversal of COVID-19 related temporary cost relief from FY21. We will look for clarity on the programming rights cost base on a go-forward basis. SKT recently announced that it had won back the English Premier League (EPL) from Spark Sport and announced in June that it had extended its exclusive rights to Australia's National Rugby League (NRL) by five years, with the new contract starting in 2023.&nbsp;</p>
</div>

Sky TV Raised Expectations&nbsp;— Can Sky TV Deliver?

OUTPERFORM
Sky TV (SKT) will report its 1H22 result on Thursday, 24 February, following what has been a stellar period of share price performance (&gt;50% over the last six months), an unusual set up for SKT.&nbsp;While it is still "cheap" by any traditional valuation metrics, we believe SKT will have to deliver on one or more of its key milestones related to subscriber revenues, programming costs and capital management in order to hold or add to its recent strong performance. We will be looking for (1) a continued slowdown in satellite subscriber losses, (2) some news around capital management, a dividend or expected dividend for FY22 and/or a potential share buy back program, and (3) continued strong cost control.&nbsp;


After five long years&nbsp;— will subscriber revenues grow?&nbsp;


After three consecutive years of high single digit revenue decline in core satellite revenues we are looking for a meaningful&nbsp; improvement to negative -3.4% YoY in 1H22, driven by a combination of (1) largely flat average revenue per user (ARPU) and Sky Box subscribers down "only" 15k YoY and down 5k versus FY21. We will also look for commentary around what SKT's expectations are for both ARPU (how negative) and Sky Box subscribers (how positive) in relation to the announced shut down of Vodafone TV. Equally as important will be total subscriber revenues, which we expect to grow (very modestly at +0.8%) for the first time in five years driven by growth in streaming. Should SKT deliver on this, we believe it will be a clear positive catalyst for the stock.&nbsp;&nbsp;


Outcome of capital structure review


SKT reiterated&nbsp;in December that it is&nbsp;undertaking a capital structure review&nbsp;which will be presented on February 24.&nbsp;We are expecting an NZ 10cps full year dividend but have relatively low confidence in our forecasts.&nbsp;We believe a&nbsp;meaningful dividend and forward guidance of growth in that dividend would be taken most positively&nbsp;by the market. A meaningful share buy back program of &gt;10%&nbsp;of shares outstanding would likely also be well received. We would view a special dividend with no accompanying&nbsp;commitment to meaningful ordinary dividend to likely be a net negative given our heightened&nbsp;expectations. No news or postponement of the review would be a clear negative, in our view.&nbsp;&nbsp;


Savings and&nbsp;re-investments. One offs and recurring. Relative and absolute&nbsp;


SKT has guided in detail for material additional cost savings in relation to both programming costs and non-programming costs of NZ$40–45m on a recurring annualised basis. Offsetting these cost savings is a substantial increase in programming costs due to the full year impact of the NZ Rugby rights deal, as well as the reversal of COVID-19 related temporary cost relief from FY21. We will look for clarity on the programming rights cost base on a go-forward basis. SKT recently announced that it had won back the English Premier League (EPL) from Spark Sport and announced in June that it had extended its exclusive rights to Australia's National Rugby League (NRL) by five years, with the new contract starting in 2023.&nbsp;


Sky TV: Raised Expectations — Can Sky TV Deliver?