The Motley Fool

Is Sky plc a buy as Twenty-First Century Fox Inc takeover hangs in the balance?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

After several months of waiting, Sky‘s (LSE: SKY) shareholders have found out today that the Rupert Murdoch’s Twenty-First Century Fox bid to seize full control of the company will face further scrutiny from regulators. Today Culture Secretary Karen Bradley said she is “minded to” refer the takeover to the competition and markets authority.

This conclusion follows a three-month investigation by the media regulator Ofcom, which seems to have concluded that the deal will hand too much influence over the UK media to Murdoch-controlled entities. The deal is not dead just yet though as the parties have until July 14 to respond before Ms Bradley makes her final decision on referral. Other regulators in the EU and Ireland have already passed the deal.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Mixed outcome

For shareholders, this outcome is a mixed blessing. On the one hand the chances of the deal going ahead are now much reduced, but on the other hand, if Fox does not complete the transaction it has agreed to pay Sky a £200m break fee. Fox had also planned to complete the takeover by the end of 2017, or pay a 10p per share special dividend, which would cost the media group just under £172m.

If the deal does not go ahead, while Sky’s shareholders will not receive the 1,075p per share in cash promised, the company will likely return the break fee to investors in addition to the special dividend. With this being the case, it’s no surprise that shares in Sky have rallied by nearly 4% on today’s news.

Still a buy 

From a longer-term perspective shares in the pay-TV provider also look attractive. At the end of April, the company released its results for the nine months to the end of March, showing a 5% increase in revenue on a constant currency basis, despite a 3% fall in advertising revenue. For the British TV advertising market as a whole, revenue fell about 8% so on this metric, Sky is outperforming the rest of the industry. The group’s European divisions also reported a strong performance with revenues up 10% in Germany and 7% in Italy. 

Unfortunately, due to higher costs associated with sports broadcasting rights, profits took a hit during the period, and City analysts expect this to be reflected in full-year results. Analysts have pencilled-in earnings per share for the year of 56.5p, down 10% year-on-year. Nonetheless, for the fiscal year ending 30 June 2018, growth is expected to return with earnings per share growth of 17% projected. 

Compared to this growth, shares in Sky don’t look overly expensive, currently trading at a forward P/E of 16.9, falling to 14.5 for 2018. In addition to this attractive earnings multiple, the shares support a dividend yield of 3.6% and the payout is covered 1.6 times by earnings per share.

Conclusion

Overall, while today’s news from the government is disappointing, it is certainly by no means the end of the Sky/Fox saga. The two companies will continue to push to get the deal done and if it falls apart, Sky is set to receive several hundred million pounds in benefits, an excellent sweetener for disappointed shareholders.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Rupert Hargreaves owns shares of Sky. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.