Pick of the Week: British Sky Broadcasting

| About: Virgin Media (VMED)

My long stock pick this week is a heavyweight in the United Kingdom cable television market: British Sky Broadcasting (BSY).

BSY Trade Setup

  • Buy Stop 41.24
  • Stop-Loss 37.94 or less if you like including commissions.
  • Take Profit Areas: 41.88 – 42.20, 47.15 – 48.13, 48.68 – 49.69, 52.69 – 53.37

British Sky Broadcasting Group plc and its subsidiaries operate a pay television broadcast service in the United Kingdom and Ireland, as well as broadband and telephony services. The Company acquires programming to broadcast on its own channels and supplies certain of those channels to cable operators for retransmission by the cable operators to their subscribers in the United Kingdom and Ireland. British Sky Broadcasting Group plc retails channels (both its own and third parties) to direct-to-home [DTH] subscribers and certain of its own channels to a limited number of digital subscriber line [DSL] subscribers. The Company also makes three of its channels available free-to-air via the United Kingdom digital terrestrial television [DTT] platform as part of the branded Freeview offering. It operates principally within the United Kingdom and Ireland, with activities conducted primarily from the United Kingdom. On November 17, 2006, the Company acquired 17.9% of ITV plc.

Although British Sky Broadcasting has had trouble with its share price performance in the last 52 weeks, with its price down about 30% to what it was 9 months ago, I’m seeing a potential turnaround in its stock price now, while some other analysts are still pessimistic near term. Longer term moving into next year BSY is positioning itself to benefit, and those benefits are starting to happen with its subscriber base still growing.

BSY Basic Data

  • Market Capitalization: 18.03B
  • Dividend: 0.56
  • Beta: 0.91
  • Average Daily Volume: 34,000.00
  • EPS: -0.04
  • Institionally Owned: 2%

BSY Interim Management Statement for the nine months ended 31 March 2008

  • Customer growth up 10%; revenue growth up 10%; on track for full year
  • Operational Performance: Customer growth in line with targets.
  • Net customer growth in the quarter of 56,000 to 8.888 million.
  • New customer additions of 289,000.
  • Lowest third quarter churn for four years at 10.5%.
  • ARPU increases to £424.
  • Total gross product sales of 1.2 million in the third quarter included:
  • Growth in Sky+ households of 262,000 to 3.393 million
  • Multi-room growth of 40,000 to 1.571 million
  • HD growth of 43,000 to 465,000
  • Broadband growth of 229,000 to 1.428 million
  • Sky Talk growth of 180,000 to 1.095 million
  • BSY Financial Performance: Strong top-line growth
  • Revenue increased by 10% on the comparable period to £3,706 million
  • Gross margin increased by one percentage point on the comparable period to 65% (excluding exceptional item)
  • Operating profit of £504 million included £127 million of investment in residential broadband and telephony, £20 million of investment in Easynet Enterprise and an exceptional charge of £17 million
  • Adjusted operating profit of £521 million reflected strong product volumes
  • Adjusted earnings per share of 17.0 pence (2007: 19.5 pence); basic loss per share of 6.8 pence includes net exceptional items of £415 million.

Disclosure: Author is long BSY.

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