Can anything now stop BSkyB?:The Investment Column

From being one of the City's most maligned stocks at flotation 18 months ago, BSkyB has rarely looked back since, soaring to an all-time high this week in expectation of record profits for the year to June. Sam Chisholm, chief executive, duly obliged yesterday, unveiling pounds 257m in pre-tax profits, a dividend of 5.5p, and revenues above pounds 1bn for the first time.

The shares, trading at a whopping 535p, up from just 240p at flotation, have seemed to defy gravity, especially since BSkyB clinched a deal to jointly develop pay-TV in Germany with Bavarian mogul Leo Kirch earlier this year. It helped, too, that the Office of Fair Trading gave the company a clean bill of health following an investigation into allegations of monopolistic behaviour.

Can anything now stop BSkyB? The company has the best programming from Hollywood and the world of sport, the best management subscription system in the country, and the only viable encryption technology for the scrambling and unscrambling of TV signals.

Importantly, it has proven it can increase subscription prices every year, on the back of new programming. This year, viewers get the Warner Channel, the Weather Channel, and seven new services from the Granada- BSkyB joint venture. The cash flow allows programme purchase budgets to rise yet further, enticing new subscribers and sending revenues higher. Sam Chisholm calls it the "virtuous circle".

There are a few worries on the horizon, all the same. Up until now, BSkyB has generated the bulk of its revenues from its charges to direct-to-home (DTH) viewers (those equipped with satellite dishes). But more than half of net new subscribers are now getting their Sky Television channels via cable, which generates lower revenues per household than DTH.

BSkyB faces some big bills in the next few years. The first will be as much as pounds 200m to develop DF1, its German pay-TV venture. Then it will have to meet the costs of introducing digital satellite in the UK, which no one has been able to reliably quantify.

There is no problem with the big investment demands: Sky has virtually no debt and generates pre-tax profits of nearly pounds 9 a second. But the amazing profit margins of late don't look sustainable.

Of course, BSkyB has been underestimated before. It could be that the company manages to migrate its existing near-monopoly from analogue to digital, maintaining its profit margins.

There must be a risk, however, that the expected profits of pounds 320m in 1996/7, or 17.1p a share, will be the end of the red-hot growth period for BSkyB, as it settles into being a big, profitable but more mature broadcaster. That would make the forward multiple of a whopping 31 times earnings look demanding.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific