Sky (LSE: SKY) has been flyinglately, its share price up around a quarter over the last three months, helped by Decembers agreed $14.6bntakeover by21st Century Fox. Todays first-half results failed to inject extra rocket fuel, but still reflect a astrong business.
Premier spend
Skysshare price is upjust 0.2% attimeofwriting despite the year-on-year 65m drop infirst-half operating profits, which fell to679m. However, group chief executive JeremyDarroch pointed out that the company has beenabsorbing an additional 314m of Premier League costs over the period, and claimed that thisactually highlights the strength of itsunderlying financial performance.
Another concernis that UK churn rate inthe six months to 31 December climbed from 10.2% to11.6% year-on-year, which Darroch blamed on the rising number of broadband customers, as theyre more likely to shop around and switch supplier. His new programme toreward loyalBritish TV customers should bring this down.
Smart thinking
Sky had plenty of positive news to report, with first-half revenues up6% on a constant currency basis to 6.4bn.The company also reportedsignificant progress onitsgrowth strategy, and record on-demand viewing of 2bn streams and downloads. It also continuesto build itsEuropean TV production studio, with 100 original series going into production this year.
The 21st Century Fox deal requires regulatory approval in Europe and Britain, and also need the backing of Sky shareholders. Todays share price of 10.07 isnt that far off the 10.75 Fox is offering, which suggests uncertainty over whether the deal will go through. This is notably below the 11.75 thatSky shares traded at just over a year ago,so this looks like a low-value bid, especially aftertodays solid ifnot spectacular results.
Outfoxed
Last month my fellow Fool Alan Oscroftwrote that he sawthe deal as a vulture attack on a company whose shares are temporarily down.After todays solid-if-unspectacular results,its a point of view I share, especially at its current valuation of 15.9 times earnings. Sky looks a buy, but ordinary shareholderswould be better off if Fox is toldto do arunner.
Italian telecom disaster
While Sky has takenwing,BT Group (LSE: BT-A)has crashed to earth. Its share price is 35% lower than a year ago, with most of the damage done in the last disastrous week, following the Italian accounting scandal. BT won plaudits for tackling Sky on its home turf ofPremierLeague broadcasting rights, only to suffer a crashing away defeat inits continental division.
As if its530m Italian write-downs werent enough, its UK business isalso facinga deteriorating outlook.Forecastrevenues for the 2016/17 and 2017/18 financial years are now both expected to be flat but the big fear is that worse could come out of Italy.
I have been wary of snatching at supposing bargains ever sincebuying falling knife BP shortly after the Deepwater disaster, only to see the share price plungeas further bad news emerged. BT looks a poor call to me.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.