Was thinking about more about the Market Update last night.
I prefer to look at NOPAT instead of EBITDA (depreciation might be non-cash, but tax sure as hell is!). If we deduct $30M (I actually think it will be more like $20M, but let's be conservative...) for tax then we have a NOPAT range of $140M - $160M.
Let's just say Depreciation and amortisation will be approx $100M to keep the numbers simple with the new IFRS 16 rules (it may be lower since we amortised goodwill aggressively over the last two years). So that would leave an accounting profit of say $40M - $60M.
However the depreciation charge is huge, and bears little resemblance to Sky's "stay in business" CAPEX. Most of their costs (content, wages etc) are OPEX.
So CAPEX requirements to 'keep the lights on' in terms of making sure their existing systems and property etc function well is much less than $100M per year. Let's be ultra conservative here by saying that amounts to about $1M a week, roughly $50M a year (even though we know there is no way they are spending $50M a year just on maintenance).
That then generates one of Warren Buffet's favourite metrics: 'Owner Earnings'. Owner Earnings then equal $90M - $110M and may or may not resemble FCF. This is the amount of money, however, that owners have to do what they will with - pay a dividend, reinvest in the business, a combination of both etc.
Of course, Sky TV is in an intensive capital expenditure phase at the moment - and choose to spend a bunch of that money on growth projects. The only realistic way to grow Sky TV is to invest in modern digital platforms and creating new revenue streams (i.e. purchase of RugbyPass).
The Owner Earnings figure is key though. The company could choose to pay it all out as a dividend (which would be foolish in Sky's case at the moment) or they can choose to invest it back in the business for growth.
Even though I understand there are a plethora of 'bad news' stories our there for Sky, I am still amazed that even after a capital intensive strategy change, the business is so profitable that it will still likely generate 'Owner Earnings' of around $100M.
Closing Market Capitalisation yesterday was $388M. To be selling at less than 4 times projected Owner Earnings is baffling to me (don't get me wrong, I am happy as it enables me to buy more...). But baffling all the same.
The analysts and institutions must assume that none of the new initiatives Sky TV are working on will be successful I suppose, and Spark will crush them in Sport even though Sky have held on to key sporting rights out to 2026.