Shares in satellite broadcaster Sky (LSE: SKY) fell 4% this morning, despite the group reporting a 3.9% rise in customer numbers to 21.6m.
Revenue for the first nine months of the year was £8,715m, 5% higher than during the same period last year. Operating profit was 12% higher, at £1,143m. This gives Sky an operating profit margin of 13%. This is respectable, but it is significantly lower than BT (19%) and ITV (22%).
Sky was keen to emphasise new programming deals such as UEFA Euro 2016, but these are expensive. Sky’s net debt keeps rising and has now reached £6.3bn. According to today’s figures, free cash generation over the last nine months was £775m. However, £750m of this was used to fund the dividend, with the remainder going towards the acquisition of Sky Deutschland.
Sky’s earnings per share are expected to fall by 7% in 2016/17. I believe the group will also need to divert some cash from dividends to debt repayment at some point. With the shares trading on 17 times 2017 earnings, I’m staying away for now.
Rising takings in a tough market
Ladbrokes (LSE: LAD) said the Cheltenham festival had been “the worst in living memory” for bookmakers, but that otherwise the firm had had good luck with betting results during the first quarter.
Group net revenue rose by 10.6% during the first quarter, thanks to a modest 4% rise in UK retail revenue and a chunkier 36.5% increase in digital net revenue.
One of Ladbrokes 2017 targets is for the group to generate 30% of its revenue from online activity. The total at the end of 2014 was 18.6%, so today’s results suggest solid progress is being made.
Overall, I think that Ladbrokes is probably a reasonable buy at current levels. Although the shares are trading on 18 times 2016 forecast earnings, profits are expected to rise by 25% next year. Dividend payments are also recovering.
Is this the best stock in the FTSE 250?
Revenue rose by 2% to £730.2m at IT firm Computacenter (LSE: CCC) in Q1.
Computacenter builds and operates data centres and other IT infrastructure for its customers. The group’s main operations are in the UK, France and Germany. The UK accounts for nearly half of all sales, but is proving troublesome at the moment. Sales were down 4% to £348.5m during the first quarter. Sales were also lower in France, but strong growth in Germany — the group’s second-biggest market — helped offset this.
The firm said that overall it expects to make progress this year and should also end the year with “record levels of net funds”. This is why I like Computacenter so much — it generates a lot of cash.
At the start of last year, Computacenter returned £97.9m of surplus cash to shareholders, reducing its net cash balance to £26m. Since then, net cash has risen back to £102.5m and is presumably expected to be higher at the end of the year. Further returns of cash seem likely and the shares look affordable on 14 times cash-adjusted forecast earnings.
