The pair said while they had no information about the potential buyer, Sky was attractive to private equity buyers because its enterprise value to operating earnings valuation was 4.5x, making it one of the lowest-valued stocks on the NZX.
An anticipated free cash flow yield of 10 per cent in FY2025 (which allowed Sky to raise the lure of a doubled dividend by FY2026 at its recent full year result) would also be a pull for a financial buyer, allowing for a leveraged deal even in a high interest rate environment.
On the other side of the coin, and despite some “structural headwinds”, Sky could be of interest for a strategic buyer “either in Australasia or further afield” because of its uniquely dominant position in the pay-TV market and its rights to most of the key sporting codes, Ibbotson and Montgomerie said.
Sky also had a “high-quality streaming business in Sky Sport Now that could be of interest for global players. The NZ market in general is a good media test bed for global companies operating in the English-speaking world”, the pair said.
Sky shares spiked from $2.47 to $2.80 after a trading halt was lifted on Friday. The stock was flat at $2.80 in late Monday, while the NZX50 was down 0.79 per cent.
Ibbotson and Montgomerie have a $3.00 12-month price target.
“We expect a strong share price reaction as investors’ price in the possibility of a meaningful bid-premium,” they said.
No legs to go through
Earlier, Hamilton Hindin Greene investment adviser Jeremy Sullivan told Market Close that Sky had been a potential takeover target for a number of years.
News of the approach to Sky came from an announcement regarding its share buyback.
“What that tells me is that Sky, whilst obliged to disclose it, does not feel that it has the legs to go through,” Sullivan said.
The pay-TV broadcaster has also been here before. In 2021, Sky appointed Jarden after receiving “unsolicited approaches” that ultimately led nowhere.
While Sky’s shares have spiked, they are still beneath the $2.90 hit early last year when the company confirmed it was reinstating its dividend.
Sky had an eventful start to 2023, with 170 local roles axed in March as 90 roles in its technology and content operations teams and around 80 in customer care were offshored to India and the Philippines (CEO Sophie Moloney said a net 200 support roles were added, boosting service).
Its new Sky Box and Sky Pod also drew complaints from earlier adopters, but Moloney told Media Insider last week that after a series of software fixes, the rollout was back on track.
Moloney also said that if NZ Rugby’s new NZR+ service wanted to show live games, that would impact the price of rights (up for renewal in 2025, with preliminary talks expected to start next year).
In comments over various interviews, Moloney has indicated she’s comfortable with what she calls “co-exclusive” deals for content that could bring down programming costs, with Sky offering viewers the convenience of being a one-stop shop.
NZ-Ireland World Cup clash
Meanwhile, Sky is touting that its coverage of Sunday’s New Zealand-Ireland quarter-final clash drew more than 1.1 million viewers across Sky and Sky Open (formerly Prime), with another 300,000-plus streaming the game via Sky Sport Now.
The match had a 20.9 per cent audience shared in the 25-54 year-old demographic coveted by advertisers, Sky said, quoting Nielsen figures, adding “this makes it the highest-rating programme of the year to date” for that bracket.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
