BSkyB shares tumble over investment plans

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Shares in the satellite broadcaster BSkyB slumped 7 per cent today after saying investment plans would affect operating profits.

Shares in the satellite broadcaster BSkyB slumped 7 per cent today after saying investment plans would affect operating profits.

The group's stock dropped 42p to 560p after it said it expected a proposed £450 million investment programme to result in a "short term compression in operating margin in 2006".

BSkyB added that it anticipated generating significant margin growth from 2007 onwards.

However, investors gave the news a cool response, with one broker, Numis Securities, cutting its full year profit forecasts for the pay TV group by between 5 per cent-10 per cent in 2005 and up to 5 per cent in 2006.

Another market watcher, David Buik, of City spread betting firm Cantor Index, said the City also was unimpressed by BSkyB's approach to investor returns, despite the group's announcement of plans to return surplus capital to shareholders.

"The market feels Messrs Murdoch and Murdoch have been very mean over dividend policy," he said.

The investment of up to £450 million is part of a new long-term growth plan unveiled today by BSkyB.

The group said it planned to increase customers by more than a third as it posted a 75 per cent rise in annual profits to £322 million.

It said it had set a new long-term operating target of reaching 10 million direct-to-home subscribers by 2010 against the current figure of 7.4 million.

It said it believed about 80 per cent of UK and Irish households would have pay TV in the long term, compared with the current 43 per cent - implying that a further 10 million homes will take the services over time.

BSkyB said it would achieve the target with measures including "reintroduction" of the Sky brand, emphasising the existing broad range of ways to get pay TV and continued investment in "must-see" programming.

Chief executive James Murdoch said: "Today's announcement of new long-term growth targets and a return of cash to shareholders demonstrates our confidence in the exciting growth potential of this business."

BSkyB said direct-to-home (DTH) subscriber numbers had increased by 81,000 during the quarter, while revenues increased by 15 per cent to about £3.7 billion.

Subscriber growth, customer turnover and average revenue per user for the quarter to June 30 were negatively affected by strong sports programming from rivals BBC and ITV in June, including Wimbledon and the Euro 2004 football tournament.

BSkyB said its mix of packages taken by subscribers continued to be weighted towards the premium end, with 52.4 per cent of all DTH customers taking the top tier Sky World package at the end of the year - down a percentage point on last year.

The total number of UK and Irish households receiving one or more Sky channels increased to more than 14 million in the quarter, driven by DTH growth, a small rise in cable TV subscribers and more homes receiving the Freeview free-to-air digital service, which broadcasts three Sky channels.

It said its Sky Sports channels enjoyed another strong year, with viewing share across UK television homes rising 11 per cent against last year.

The fourth quarter delivered strong figures with eight live football finals shown in 14 days in May.

The 2004/5 soccer season starting this month will be the most televised on Sky Sports.

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