The Investment Column : Satellite plans lift BSkyB hopes

BSkyB's involvement in one of the consortia bidding for next year's 30-channel digital terrestrial service has unblocked the sentiment that drives this recently volatile stock.

After a painful stumble from almost 700p in October to well under 500p before Christmas, the shares have risen relentlessly and yesterday closed 30p higher at 623p.

Yesterday's half-year figures were bang in line with expectations but the market warmed to comments from the company's feisty chief executive, Sam Chisholm. BSkyB is going ahead with digital satellite this year and will be beaming 200 channels into subscribers' homes by the end of the year.

Orders for a million set-top decoders are about to go out and they will undercut the terrestrial boxes by about pounds 100 thanks to subsidies from interactive service suppliers.

The push into the potentially lucrative German market, both through a planned digital venture, DF1, and via Premiere, Germany's analogue version, remains on track, while at home subscriber numbers continue to rise strongly after a bumper final quarter of 1996. Love it or hate it, there seems to be no obstacle to BSkyB's dominance of the burgeoning television market both here and across Europe.

Profit before tax in the six months to December jumped 26 per cent to pounds 134m after record subscriber growth of 434,000 in the last three months of the year.

That took total subscriber numbers to over 6 million in the UK and Eire and the proportion of those who subsequently dispensed with the service fell a bit compared with the same period in 1995.

Earnings per share increased just over a quarter to 7.1p and the interim payout was 10 per cent higher at 2.75p. Cash flow was hit during the period by a pounds 50m pre-payment for its renewed Premier League contract and a further pounds 34.7m for new satellite lease contracts, but that should not distract from prodigious underlying cash generation.

The question is how much of that good news is in the price and how best to measure it.

Kleinwort Benson's discounted cash-flow model on the company puts a price tag of about 500p on the core satellite business, then chips in a further 100p for the DF1 stake, another 80p for its involvement in terrestrial digital television and 130p for the value of its digital satellite interests. That adds up to a grand total well ahead of the current price.

Judged against conventional stock market yardsticks, the shares look fully priced on the basis of forecast profits of about pounds 300m this year, earnings per share of 15p and a prospective price/earnings ratio of 42.

Buoyed by the small free float of shares and those bullish net present value numbers, however, the recent run is not over yet.