New Zealand Professional Investment Services Firm

Forsyth Barr

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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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Sky Network Television / Equity Bottom-Up

<h2>Sky TV Upgrade to (previously conservative) guidance</h2>
Sky TV (SKT) has upgraded FY21 guidance. In our opinion, this represents more the conservatism of the initial guidance than a positive change in operating trends. This brings SKT’s guidance in line with our current forecasts (which were above prior guidance), albeit with our EBITDA now at the bottom end.
Whilst any upgrade to guidance is positive, we see little new information in today’s release:
<ul>
<li>Revenue remains challenging. Guidance implies a -7% to -9% yoy decline vs. an average of -5.3% pa over the past four years. SKT states it has “delivered six consecutive months of growth in direct satellite customers” and “achieved greater-than-expected growth in streaming revenue”. However, the subscribers x ARPU outcome still appears to be declining sharply. At this time we’re still waiting on tangible evidence that SKT can stem this erosion.</li>
<li>EBITDA, down -19% to -27% yoy, includes the benefit of “one-off cost savings as a result of the renegotiation of certain content rights”, i.e. less available live sport. Cost control (contributing to the healthy free cash flow we expect SKT to generate this year) is positive, however, there remains a question of what SKT’s cost base looks like on a go forward basis. SKT is facing material content cost increases on renewed sport rights contracts. We understand negotiations to revise some contract terms remain live (specifically with NZ Rugby, SKT’s largest rights contract). We have no insight into the terms of these contracts, and therefore SKT’s ability to leverage changes in competition structures and playing schedules into revised contract terms.&nbsp; &nbsp;</li>
</ul>
The key question for investors is, what does SKT’s business model economics look like in an increasingly streaming world? In our view, nothing in today’s upgrade helps answer that question. Maintain NEUTRAL.
Guidance vs. Forbar
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1683014251483580475&amp;th=175b448b7399483b&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ8qpct8m1zFiURgGm_tOS-mNsixW3yZAUa1jQlWh8eZeDTvTh-gtiY0YpJAaZWt-IkMMl3e2TLdOAGu_AvesyIpAFxXISj0HoOeYJLFq0Z-LW1HoGVq2EgzZUA&amp;disp=emb" width="346" height="103" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Company reports, Forsyth Barr analysis
Matt Henry &nbsp;CFA Head of Wealth Management Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1683014251483580475&amp;th=175b448b7399483b&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9J40xhlt7dJANu9168yMmBy0OeeV6YV_-xwW2B8BlKf7HuLlsclZtrOwKdzJ8KHo3_G0vff8fo0g_s3w9WQ3NysFWXuazWmbgGEPSStJT7-ECMDzaMa83SzBM&amp;disp=emb" class="editor-image img-responsive"></figure>
 M: +64 21 329 291 |P: +64 9 368 0115 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Sky TV Upgrade to (previously conservative) guidance
Sky TV (SKT) has upgraded FY21 guidance. In our opinion, this represents more the conservatism of the initial guidance than a positive change in operating trends. This brings SKT’s guidance in line with our current forecasts (which were above prior guidance), albeit with our EBITDA now at the bottom end.
Whilst any upgrade to guidance is positive, we see little new information in today’s release:

Revenue remains challenging. Guidance implies a -7% to -9% yoy decline vs. an average of -5.3% pa over the past four years. SKT states it has “delivered six consecutive months of growth in direct satellite customers” and “achieved greater-than-expected growth in streaming revenue”. However, the subscribers x ARPU outcome still appears to be declining sharply. At this time we’re still waiting on tangible evidence that SKT can stem this erosion.
EBITDA, down -19% to -27% yoy, includes the benefit of “one-off cost savings as a result of the renegotiation of certain content rights”, i.e. less available live sport. Cost control (contributing to the healthy free cash flow we expect SKT to generate this year) is positive, however, there remains a question of what SKT’s cost base looks like on a go forward basis. SKT is facing material content cost increases on renewed sport rights contracts. We understand negotiations to revise some contract terms remain live (specifically with NZ Rugby, SKT’s largest rights contract). We have no insight into the terms of these contracts, and therefore SKT’s ability to leverage changes in competition structures and playing schedules into revised contract terms.&nbsp; &nbsp;

The key question for investors is, what does SKT’s business model economics look like in an increasingly streaming world? In our view, nothing in today’s upgrade helps answer that question. Maintain NEUTRAL.
Guidance vs. Forbar

Source: Company reports, Forsyth Barr analysis
Matt Henry &nbsp;CFA Head of Wealth Management Research

 M: +64 21 329 291 |P: +64 9 368 0115 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Sky TV: Upgrade To (Previously Conservative) Guidance