British Sky Broadcasting has reported a profitable third quarter, on the back of high demand for HDTV, but says it is still facing a challenging year.
When people's pockets are getting a bit empty and they can't afford to go out boozing, dancing, watching movies, or whatever is their fancy, what do they do instead? They stay at home and watch telly. And that's good news for British Sky Broadcasting (LSE: BSY), as its results for the nine months ended 31 March 2009, released today, attest.
Headlines
BSkyB has apparently seen an 80,000 net increase in its customers, and Sky TV now reaches more than 9.3 million households. That's a higher rate of customer growth than the same period the previous year, and is better than analysts were expecting. Over 5 million Sky customers now subscribe to Sky+, with more than 1 million taking its High Definition service, with 33 HD channels now on offer.
A lot of people don't realise that BSkyB is also the UK's fourth largest provider of broadband internet services, behind BT (LSE: BT-A), Virgin Media, and Carphone Warehouse (LSE: CPW), and it seems that 1.4 million (15%) of its customers take a combined subscription to TV, telephony and broadband.
Bottom line
That impressively large customer base translates into a hefty adjusted revenue for the nine months of £3.9b, which is 7% higher than the nine months to March 2008. Adjusted operating profit for the period is up 13% to £589m, and pre-tax earnings rose to £339m providing adjusted basic earnings per share of 19.2p, up 13%.
In credit-crunch times, free cash flow and debt are important figures to keep an eye on, and BSkyB has turned in a free cash flow of £264m, which reduces its net debt to £1.67b. That's down from a debt figure of £1.9b the year before, but to ordinary mortals that still seems like quite a staggering sum to owe. Still, at least Moody's have upgraded the company’s unsecured debt rating from Baa2 to Baa1 (for whatever that's worth, considering the credit rating agencies' abysmal record on sub-prime mortgage instruments of late).
The full year?
Chief executive Jeremy Darroch said, of expectations for the full year:
"Looking ahead to the rest of calendar 2009, we expect conditions to remain challenging. In this environment, and at a time when people are spending more time at home, we will continue to provide our customers great entertainment and money-saving broadband and telephony. At the same time, we will stay focused on cost efficiency to allow us to invest sensibly in areas that drive long-term value for the business, such as high definition, with the objective of emerging stronger from the downturn."
Growth in subscriptions to HD services has been fuelled by the company dropping the price of its Sky+ HD box to £49, and demand is expected to increase further. To handle this, 1,000 new jobs in the company's customer service and installation teams are expected to be created by the end of June, with 750 of those already in place. In contrast to almost daily stories of job losses, that has to be welcome news.
The response
Investors seem to be mildly, if not euphorically, happy with the figures, with the share price being up 3% on the day, to 478p at the time of writing.
Analysts are currently expecting full-year earnings of about 27p per share, which will require a stronger fourth quarter -- extrapolating today's reported 19p suggests full year EPS of about 25p. So we will have to wait and see if those expectations are now revised.
The current share price puts the company on a valuation of about £8.4b, and if expectations remain unchanged, suggests a P/E ratio of about 17 for the end of the year, dropping to 14 for 2010.
What do you think of these results? Do come and tell us on the BSkyB discussion board, or add a comment below.
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