BSkyB bolsters its price tag with bumper results

By James Taylor, managementtoday.co.uk, Thursday, 28 April 2011 12:03PM

Soaring revenues and rising demand mean Rupert Murdoch is going to have dig an awful lot deeper to get full control of BSkyB.

Another stonking quarter for BSkyB: the satellite broadcaster boosted revenues by 13% to £1.46bn in the first three months of 2011. Despite consumer confidence being in the doldrums, it managed to sign up 51,000 new customers during the period, well above City forecasts, and squeeze even more cash out of its existing punters. Great news for the company's shareholders - with the obvious exception of Rupert Murdoch, whose 700p-a-share bid to take full control of BSkyB now looks even skinnier than it did before...

BSkyB's pre-tax profits were actually down by a third on the same period last year, but that was largely because that quarter saw the sale of its ITV stake; on an underlying basis, profits were up 5%. As a result of its latest additions, it now has a total customer base of 10.1m, more than a quarter of whom have signed up for the so-called 'triple play' (that's TV, broadband and telephony); this has helped Sky to boost average revenue per user to £544 per year, up 8%. Its new products are also going great guns: another 189,000 people signed up to Sky+HD, with the new Sky Atlantic channel (home of shows like the much-hyped Boardwalk Empire) proving a particular hit.

In fact, there's no real sign of BSkyB slowing down, despite the doom-mongers' predictions that pay-TV would be among the first things to go when consumers started tightening their belts. Sky's churn rate did increase slightly, to 10.4%, but in the circumstances that's still impressively low. Clearly we need Champions League football and repeats of Location, Location, Location much more than we need fripperies like food and clothes.

One significant consequence of the above is that it strengthens BSkyB's hand considerably in its negotiations with Rupert Murdoch's News Corp. Even if Culture Secretary Jeremy Hunt gives the deal the go-ahead - as everyone seems to think he will - there's no way that the rest of BSkyB shareholders will countenance a bid at 700p. CEO Jeremy Darroch left the door open today, suggesting that Sky News would do perfectly well as a stand-alone entity (one of the likely conditions for any such deal). But BSKyB shares are currently changing hands at around 840p; even though that's partly due to all the bid speculation, it can still reasonably argue that with a growth story like this, it won't get out of bed for anything less than 800p-a-share.

Will that prove too rich for Rupert's blood? Or will he decide that the upside is worth the outlay? We shall see.

This article was first published on managementtoday.co.uk