View from City Road: Sentiment flowing in BSkyB's favour

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The Independent Online
What price hope? About pounds 2bn if you are BSkyB. For the past few months every investment bank worth the name has been running a slide rule over it in an attempt to work out how much the satellite group might be worth.

Their verdicts have grown like Topsy since the dark days of 1990 when few would have given a farthing for the network.

Many now talk in terms of a pounds 4bn- plus flotation, some even of pounds 5bn, which would mean that the group would dwarf the likes of Carlton Communications (market capitalisation pounds 1.8bn) and Granada (worth around pounds 2.8bn.)

Any valuation of this sort of necessity takes a very rosy view of the future. Take today's figures and apply a multiple of, say, 20 times earnings and BSkyB is worth around pounds 2bn.

The higher valuations rely heavily on estimates of future growth. BZW's pounds 4.47bn, for instance, is based on a multiple of 15.3 times estimated 1997- 98 post-tax earnings of pounds 292m.

That assumes a near tripling of revenues in the next few years, which is in turn dependent on a 60 per cent increase in the number of direct subscribers by 2000 and a 250 per cent rise in cable subscribers.

Can BSkyB really have the momentum to secure those extra viewers? The enthusiasts insist it does, pointing to BSkyB's startling performance in converting viewers to paying subscribers and in attracting new subscribers - more than a million last year.

Threats exist. A big commercial one comes in the shape of BT and pay- per-view, which could give most homes in the country access to Hollywood movies before they appear on Sky. There is also a possible legislative threat from an incoming Labour government.

Evasive action is already being taken on both fronts. On the commercial front BSkyB is looking at digital transmission, which would enable it to enter the pay-per-view market and compete with BT. Flotation seems likely to lessen the legislative threat.

Highly speculative it may be. But sentiment is flowing in BSkyB's favour. The chances are that Pearson, Chargeurs, Granada and above all News Corporation will soon be laughing all the way to the bank.

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