New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

Sky Network Television / Equity Bottom-Up

<h2>Sky TV</h2>
Media&nbsp;<a target="_blank"></a>Too Tough for Benefit of the Doubt; Cut to UNDERPERFORM
We doubt Sky TV’s (SKT) FY20 revenue guidance, down -3–6%, would have surprised the market. But we suspect the magnitude of cost escalation, translating into EBITDA (like-for-like) down a substantial -32–40%, will have. We understand what SKT’s new management team is trying to achieve — position the company to be NZ’s aggregator of sporting content in a streaming world. Even if SKT is successful in achieving this goal, the economics of “success” remains highly uncertain. In our view, (1) the market is pricing earnings to stabilise around FY20E levels, which, (2) in an industry being buffeted by disruption and intense competition for subscribers and content, feels optimistic. We downgrade to UNDERPERFORM.
What’s changed?
<ul>
<li>Earnings: Dramatic changes. FY20/21/22E EPS down -61%/-66%/-55%.</li>
<li>Target Price: Cut to NZ80c.</li>
</ul>
Cost in
SKT is a largely fixed cost business, facing declining revenue, and investing to try to stay relevant in a disrupted, and now global, industry. The lift in cost has come from: (1) organisational change including restructuring and rebranding, (2) content and production, including rights from and support for sporting bodies, and (3) the acquisition of Rugby Pass. We understand around one-third of the cost increases are one-off in nature.
Figure 1. FY20 guidance
<table class="table table-striped">
<thead>
<tr>
<td style="width: 35.45pt;">
&nbsp;
</td>
<td style="width: 53.2pt;">
FY19
</td>
<td style="width: 53.25pt;">
IFRS 16
</td>
<td style="width: 53.2pt;">
FY19 adjusted
</td>
<td style="width: 53.25pt;">
FY20 guidance
</td>
<td style="width: 53.25pt;">
yoy % chg
</td>
</tr>
</thead>
<tbody>
<tr>
<td style="width: 35.45pt;">
Revenue
</td>
<td style="width: 53.2pt;">
795
</td>
<td style="width: 53.25pt;"></td>
<td style="width: 53.2pt;">
795
</td>
<td style="width: 53.25pt;">
750–770
</td>
<td style="width: 53.25pt;">
-3–6%
</td>
</tr>
<tr>
<td style="width: 35.45pt;">
Opex
</td>
<td style="width: 53.2pt;">
554
</td>
<td style="width: 53.25pt;"></td>
<td style="width: 53.2pt;">
514
</td>
<td style="width: 53.25pt;">
560–600
</td>
<td style="width: 53.25pt;">
+10–18%
</td>
</tr>
<tr>
<td style="width: 35.45pt;">
EBITDA
</td>
<td style="width: 53.2pt;">
241
</td>
<td style="width: 53.25pt;">
40
</td>
<td style="width: 53.2pt;">
281
</td>
<td style="width: 53.25pt;">
170–190
</td>
<td style="width: 53.25pt;">
-32–40%
</td>
</tr>
</tbody>
</table>
Source: Company reports, Forsyth Barr analysis
Battling disruption and revolution to streaming
The escalation in costs highlights how aggressive SKT is now being in attempting to reposition itself for the modern environment. Whilst this shift is necessary to give SKT a fighting chance at being relevant long-term, the magnitude of the expected EBITDA decline highlights the challenge of streaming economics with its low barriers to entry, and global scale competitors. SKT has lifted its focus on sport, again understandable given sport is more localised than general entertainment. But SKT also faces cost pressure in that category from (1) sporting codes demanding broader and deeper coverage, and (2) competition from Spark Sport, whose recent six-year contract to broadcast NZ Cricket means SKT will, going forward, have to assume bidding for all key content is competitive.&nbsp;
<div class="content-highlight">
Investment View
SKT faces considerable disruptive forces with escalating competition for both audiences and content. We expect continued medium-term earnings pressures from SKT’s customers cutting or trimming bundles, declining advertising revenue, and higher content costs. UNDERPERFORM&nbsp;
</div>
Matt Henry, CFA matt.henry@forsythbarr.co.nz +64 9 368 0115

Sky TV
Media&nbsp;Too Tough for Benefit of the Doubt; Cut to UNDERPERFORM
We doubt Sky TV’s (SKT) FY20 revenue guidance, down -3–6%, would have surprised the market. But we suspect the magnitude of cost escalation, translating into EBITDA (like-for-like) down a substantial -32–40%, will have. We understand what SKT’s new management team is trying to achieve — position the company to be NZ’s aggregator of sporting content in a streaming world. Even if SKT is successful in achieving this goal, the economics of “success” remains highly uncertain. In our view, (1) the market is pricing earnings to stabilise around FY20E levels, which, (2) in an industry being buffeted by disruption and intense competition for subscribers and content, feels optimistic. We downgrade to UNDERPERFORM.
What’s changed?

Earnings: Dramatic changes. FY20/21/22E EPS down -61%/-66%/-55%.
Target Price: Cut to NZ80c.

Cost in
SKT is a largely fixed cost business, facing declining revenue, and investing to try to stay relevant in a disrupted, and now global, industry. The lift in cost has come from: (1) organisational change including restructuring and rebranding, (2) content and production, including rights from and support for sporting bodies, and (3) the acquisition of Rugby Pass. We understand around one-third of the cost increases are one-off in nature.
Figure 1. FY20 guidance




&nbsp;


FY19


IFRS 16


FY19 adjusted


FY20 guidance


yoy % chg






Revenue


795



795


750–770


-3–6%




Opex


554



514


560–600


+10–18%




EBITDA


241


40


281


170–190


-32–40%




Source: Company reports, Forsyth Barr analysis
Battling disruption and revolution to streaming
The escalation in costs highlights how aggressive SKT is now being in attempting to reposition itself for the modern environment. Whilst this shift is necessary to give SKT a fighting chance at being relevant long-term, the magnitude of the expected EBITDA decline highlights the challenge of streaming economics with its low barriers to entry, and global scale competitors. SKT has lifted its focus on sport, again understandable given sport is more localised than general entertainment. But SKT also faces cost pressure in that category from (1) sporting codes demanding broader and deeper coverage, and (2) competition from Spark Sport, whose recent six-year contract to broadcast NZ Cricket means SKT will, going forward, have to assume bidding for all key content is competitive.&nbsp;

Investment View
SKT faces considerable disruptive forces with escalating competition for both audiences and content. We expect continued medium-term earnings pressures from SKT’s customers cutting or trimming bundles, declining advertising revenue, and higher content costs. UNDERPERFORM&nbsp;

Matt Henry, CFA matt.henry@forsythbarr.co.nz +64 9 368 0115

Sky TV: Media Too Tough for Benefit of the Doubt; Cut to UNDERPERFORM

<h2>Sky TV</h2>
FY20 guidance – Not afraid to invest
Sky TV (SKT) has guided to FY20 revenue down -3-6%, and EBITDA (like-for-like) down a substantial -32-40%.
Whilst it was clear SKT’s earnings were going to fall, the extent of cost increases and therefore the magnitude of the EBITDA decline has surprised us. The margin of forecasting error was always very high. SKT is a largely fixed cost business, facing declining revenue, and investing to try to stay relevant in a disrupted, and now global, industry.
The lift in cost has come across: (1) organisational change including restructuring and rebranding, (2) content and production, including rights from and support for sporting bodies, &amp; (3) the acquisition of Rugby Pass. We understand around one-third of the cost increases are one-off in nature. &nbsp;
The market was already well aware of the substantial uncertainty of SKT’s near and long-term earnings given the pressures on both revenue and costs. The guidance highlights how aggressive SKT is now being in its attempt to position itself as NZ’s home of sport in a streaming world. Even if SKT is successful in achieving this outcome, the economics of what “success” looks like remain highly uncertain.
FY20 guidance
<table class="table table-striped"><colgroup><col> <col span="3"> <col> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 90.6pt;"></td>
<td style="text-align: center; width: 48pt;">2019</td>
<td style="text-align: center; width: 48pt;">IFRS 16</td>
<td style="text-align: center; width: 48pt;">2019 adj</td>
<td style="text-align: center; width: 59.4pt;">2020 Forbar (IFRS 16 adj)</td>
<td style="text-align: center; width: 56.4pt;">2020 guidance</td>
<td style="text-align: center; width: 48pt;">yoy % chg</td>
</tr>
<tr>
<td>Revenue</td>
<td style="text-align: center;">795</td>
<td style="text-align: center;"></td>
<td style="text-align: center;">795</td>
<td style="text-align: center;">796</td>
<td style="text-align: center;">750-770</td>
<td style="text-align: center;">-3-6%</td>
</tr>
<tr>
<td>Opex</td>
<td style="text-align: center;">554</td>
<td style="text-align: center;"></td>
<td style="text-align: center;">514</td>
<td style="text-align: center;">509</td>
<td style="text-align: center;">560-600</td>
<td style="text-align: center;">+10-18%</td>
</tr>
<tr>
<td>EBITDA</td>
<td style="text-align: center;">241</td>
<td style="text-align: center;">40</td>
<td style="text-align: center;">281</td>
<td style="text-align: center;">260</td>
<td style="text-align: center;">170-190</td>
<td style="text-align: center;">-32-40%</td>
</tr>
</tbody>
</table>
Source: Company reports, Forsyth Barr analysis
Matt Henry CFA Director / Senior Analyst, Equities Forsyth Barr Limited
T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 (9) 368 0115 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 (9) 368 0092 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; PO Box 97, Auckland 1140 W: &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; <a href="https://foundry.smartkarma.com/www.forsythbarr.co.nz" target="_blank" rel="noopener">www.forsythbarr.co.nz</a> Twitter:&nbsp; @forsythbarr

Sky TV
FY20 guidance – Not afraid to invest
Sky TV (SKT) has guided to FY20 revenue down -3-6%, and EBITDA (like-for-like) down a substantial -32-40%.
Whilst it was clear SKT’s earnings were going to fall, the extent of cost increases and therefore the magnitude of the EBITDA decline has surprised us. The margin of forecasting error was always very high. SKT is a largely fixed cost business, facing declining revenue, and investing to try to stay relevant in a disrupted, and now global, industry.
The lift in cost has come across: (1) organisational change including restructuring and rebranding, (2) content and production, including rights from and support for sporting bodies, &amp; (3) the acquisition of Rugby Pass. We understand around one-third of the cost increases are one-off in nature. &nbsp;
The market was already well aware of the substantial uncertainty of SKT’s near and long-term earnings given the pressures on both revenue and costs. The guidance highlights how aggressive SKT is now being in its attempt to position itself as NZ’s home of sport in a streaming world. Even if SKT is successful in achieving this outcome, the economics of what “success” looks like remain highly uncertain.
FY20 guidance
    



2019
IFRS 16
2019 adj
2020 Forbar (IFRS 16 adj)
2020 guidance
yoy % chg


Revenue
795

795
796
750-770
-3-6%


Opex
554

514
509
560-600
+10-18%


EBITDA
241
40
281
260
170-190
-32-40%



Source: Company reports, Forsyth Barr analysis
Matt Henry CFA Director / Senior Analyst, Equities Forsyth Barr Limited
T:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 (9) 368 0115 TF:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 0800 367 227 F:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; +64 (9) 368 0092 P:&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; PO Box 97, Auckland 1140 W: &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; &nbsp;&nbsp; www.forsythbarr.co.nz Twitter:&nbsp; @forsythbarr

Sky TV: FY20 Guidance – Not Afraid to Invest

New Zealand

SKY Network Television Limited is a pay-television operator in New Zealand.  The Company broadcasts various pay networks via UHF and Digital satellite platforms and offers a variety of programming including news, sports, movies, digital radio and pay-per-view events.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Sky Network Television (SKT NZ)

Sky TV: Media Too Tough for Benefit of the Doubt; Cut to UNDERPERFORM

Sky TV Media Too Tough for Benefit of the Doubt; Cut to UNDERPERFORM We doubt Sky TV’s (SKT) FY20 revenue guidance, down -3–6%, would have...

Forsyth Barr

Sky TV: FY20 Guidance – Not Afraid to Invest

Sky TV FY20 guidance – Not afraid to invest Sky TV (SKT) has guided to FY20 revenue down -3-6%, and EBITDA (like-for-like) down a substantial...

Forsyth Barr

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)