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.