Forsyth Barr analysts Arron Ibbotson and Benjamin Crozier are also wary of the effect of the picket lines in Hollywood but, regardless, they are picking that Neon subs will jump by 5000 to 323,000.
The pair also think Sky Sport Now is likely to have benefited from the various World Cups, with subs rising by 13,000 to 162,000.
Streaming has grown from an “extra” to a “critical pillar”, the pair said.
All analysts noted Sky’s increased pricing power with its only domestic rival, Spark Sport, dispatched – a point that punters will have already gleaned from a series of price rises.
2. A bump in the profit payout?
Sky TV has already delivered comprehensive full-year FY2024 guidance, including largely flat net profit and single to mid-single-digit revenue growth. Dekker said the forecast was “not particularly ambitious”. With most programming costs locked in, he would be surprised if the headline numbers were not hit.
For Ibbotson and Crozier, the largest uncertainty is around the profit payout. Sky has forecast a full-year dividend of at least 15 cents per share. The analyst consensus is 16.3cps; Ibbotson and Crozier are picking 17.3cps.
Looking further out, the pair will be looking for confirmation that Sky is still on track to hit its FY2026 dividend target of 30cps.
3. Sky Box boom or bust
Dekker said the 30cps goal, and other mid-decade targets, “are dominated by a return of capex to normal levels once the new Sky Box rollout is complete”. Right now, Sky is at the peak of a spending cycle.
Dekker and other analysts will be looking for an update on the new Sky Box uptake after the initial bumpy reception.
“Given some of the teething issues, I suspect it’s a bit behind schedule.”
A deliberate slow-down so early bugs could be ironed out was the right move, Dekker said.
Ibbotson and Crozier said anecdotal evidence was that Sky Box reception had been “mixed”.
Once the Sky Box rollout was finally complete, it would help stabilise satellite numbers, Dekker said. When all was working as advertised, its support for streaming apps like Netflix, Disney+, Amazon’s Prime and other new features would make it a more attractive proposition.
4. Cost-cutting on track?
Thursday’s result will be the first full reporting period that includes a round of offshoring that cut 170 local roles, Ibbotson and Crozier said. In March last year, Sky revealed a restructure that would cut 90 roles in its technology and content operations teams and about 80 in customer care as roles were shifted to India and the Philippines, along with other cost-cutting moves. It said there was a net gain of support staff counting those based offshore, leading to better service overall.
Overall, they expect operating expenses to be up 2 per cent, in line with guidance.
Looking further ahead
After turbulent years of restructuring, the firm has entered a period of relative stability. With Spark Sport gone, “We’ve come full circle. All the major codes are back on one platform now – bar cricket, which was basically given away to TVNZ,” Dekker said.
He said he had downgraded to the cheaper, ad-supported version of Neon to keep tabs on the number of advertisements it was running (the first revenue from which will appear in the second half). He had not seen many, but he saw Sky taking a softly-softly approach. The good news for Sky – and other broadcasters running ads in streaming – is that, while the commercials might be fewer in number than linear TV, they are unskippable and every click of the pause button throws up an unmissable ad.
Will Sky keep its rugby contract?
The end of Sky’s current rugby contract, in mid-FY2026, will mark the next potential turning point. NZ Rugby will have to choose whether to stay with Sky as its exclusive broadcast and streaming partner in NZ, or whether also to offer some live coverage through its putative NZR+ platform.
In a note issued in August last year – shortly after Sky’s board rejected a low-ball offer from an unnamed party – Morningstar analyst Brian Han said he thought Sky’s three-year financial goals were “ambitious”, given the firm no longer enjoyed the “moat” that its satellite service provided in the pre-streaming days.
His projections were all below Sky’s forecast, which included what Han called a “lofty” 21-23 per cent ebitda margin (or earnings before interest and tax, depreciation and amortisation divided by revenue).
“We forecast flat revenue over the next five years, with falling legacy pay-TV revenue offset by growth in streaming and broadband revenue,” Han said. “We expect group ebitda margin to average 19 per cent during the next five years, below the 22.2 per cent achieved during the past three years.”
Sky TV shares were recently trading at $2.80.
The stock is up 9.4 per cent over the past year.
Han, who has a three-star rating, says the stock has a fair value of $3.00.
Forsyth Barr, which has a neutral rating, values Sky at $3.05.
After Sky’s full-year 2024 result, Jarden gave the stock an overweight rating and a $2.93 target price.
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.
