SKT Sky Network Television Limited.

[mistaTea]

EPS, ability to pay dividends, Share price pressure, market sentiment, the HBO contract, re-rating for Insto's and rating companies. All have come together to create a new buzz around SKY.

Yes, they have affected the 'buzz' (sentiment) but not the risk.

If your analysis of the business was correct then you would have predicted the earning profile correctly and assessed the probability of Sky holding onto key deals etc.

If you calculated that Sky was worth $800M, and managed to buy your shares at a market cap of $500M...then you have nothing to fear with the quoted value dropping to $300M.

In fact, if you back your analysis then you should pray that it falls to $300M so you can grab even more shares and increase your ROI.

[LoungeLizzard]

Yes, they have affected the 'buzz' (sentiment) but not the risk.

If your analysis of the business was correct then you would have predicted the earning profile correctly and assessed the probability of Sky holding onto key deals etc.

If you calculated that Sky was worth $800M, and managed to buy your shares at a market cap of $500M...then you have nothing to fear with the quoted value dropping to $300M.

In fact, if you back your analysis then you should pray that it falls to $300M so you can grab even more shares and increase your ROI.

Risk/ perception of risk are linked to market sentiment. And vice versa. Analsying companies is not just about fundamentals - its about how the market see's those fundamentals. If it is purely about the risk of the SP going down, Sky is a much more solid business now than it was a month or so ago. That is reflected in how it is viewed by the market. You may think nothing has changed but I'm afraid the market doesn't agree with you. And the market determines the SP and the "risk" profile accordingly.
And incidentally how would anyone be able to predict whether SKY could hold onto the HBO team by analysing it's risk profile. That decision has more to do with HBO than Sky.

[Balance]

Yes, they have affected the 'buzz' (sentiment) but not the risk.

If your analysis of the business was correct then you would have predicted the earning profile correctly and assessed the probability of Sky holding onto key deals etc.

If you calculated that Sky was worth $800M, and managed to buy your shares at a market cap of $500M...then you have nothing to fear with the quoted value dropping to $300M.

In fact, if you back your analysis then you should pray that it falls to $300M so you can grab even more shares and increase your ROI.

That's what Warren Buffett do.

Afraid that he is one of a kind however - many try to copy but very few have succeeded.

[mistaTea]

Risk/ perception of risk are linked to market sentiment. And vice versa. Analsying companies is not just about fundamentals - its about how the market see's those fundamentals. If it is purely about the risk of the SP going down, Sky is a much more solid business now than it was a month or so ago. That is reflected in how it is viewed by the market. You may think nothing has changed but I'm afraid the market doesn't agree with you. And the market determines the SP and the "risk" profile accordingly.

You are essentially saying that those who were buying Sky @280M Market Cap were taking more RISK than those who are now buying Sky @370M Market Cap. You've lost me.

And incidentally how would anyone be able to predict whether SKY could hold onto the HBO team by analysing it's risk profile. That decision has more to do with HBO than Sky.

An investor who understands the business would have formed some view of probability around Sky hanging on to the majority of their key contracts or not. In fact, it would be impossible to assess the likelihood of a future earning profile unless you had some notion in mind as to Sky's ability to hold onto key contracts (after all, if Sky have no content deals they have no business). You may not have gotten down to the detail of predicting specific contracts (i.e HBO, NZR etc). But you will have (or should have) formed a view on Sky's continuing ability to win important deals.

I would always argue that the risk you face as a business owner has nothing to do with market sentiment at any point in time and is all to do with how your business is performing, facing down threats, allocating capital, making decisions that benefit the shareholder etc.

[LaserEyeKiwi]

I would say the HBO renewal has removed significant risk for some of Sky. The NEON service would have taken a big blow content wise without that deal. Would have been the equivalent of sky sport losing the Rugby rights. Not a fatal blow, but makes the value proposition much less for many and would have led to either a loss of subscribers or a large drop in pricing power (or both).

to elaborate further: NEON is one of sky’s core growth hopes, so if that stumbled it would be in bad shape. Right now after the HBO/Warner’s renewal I think it looks fine for a few years.

[mistaTea]

I would say the HBO renewal has removed significant risk for some of Sky.

That will also depend on how much Sky paid to retain (and expand) the HBO deal. I think it (as well as the Viacom deal and others) definitely provides more evidence to those of us who figured that, on the balance of probabilities, Sky will still be able to win important deals.

But I don't see the SP as a particularly helpful tool in determining risk to the long term business owner. If you have assessed the business correctly, and purchased with a margin of safety - your risk is almost zero (regardless of movements in quoted value).

[LoungeLizzard]

You are essentially saying that those who were buying Sky @280M Market Cap were taking more RISK than those who are now buying Sky @370M Market Cap. You've lost me.



An investor who understands the business would have formed some view of probability around Sky hanging on to the majority of their key contracts or not. In fact, it would be impossible to assess the likelihood of a future earning profile unless you had some notion in mind as to Sky's ability to hold onto key contracts (after all, if Sky have no content deals they have no business). You may not have gotten down to the detail of predicting specific contracts (i.e HBO, NZR etc). But you will have (or should have) formed a view on Sky's continuing ability to win important deals.

I would always argue that the risk you face as a business owner has nothing to do with market sentiment at any point in time and is all to do with how your business is performing, facing down threats, allocating capital, making decisions that benefit the shareholder etc.

I agree with your last paragraph - and that is my point. The events of the last month have strengthened all the aspects of the business you mention. And the market has reacted accordingly. I don't buy on market sentiment but in this case, Sky has been out of favour for so long, because the fundamentals of the business were fragile. Those things have changed - deals have been secured, the prospect of dividends returning is now a possibility, the rebalance sheet is clean, and subscribers no's a re stabilising. That to me - and apparently the market agrees - translates to a lower risk profile and an improving SP. There may be twists in the tale yet but I am far more comfortable being a SKY investor than I was only 1 month ago, let alone 1 year ago.

[mistaTea]

I agree with your last paragraph - and that is my point. The events of the last month have strengthened all the aspects of the business you mention. And the market has reacted accordingly. I don't buy on market sentiment but in this case, Sky has been out of favour for so long, because the fundamentals of the business were fragile. Those things have changed - deals have been secured, the prospect of dividends returning is now a possibility, the rebalance sheet is clean, and subscribers no's a re stabilising. That to me - and apparently the market agrees - translates to a lower risk profile and an improving SP. There may be twists in the tale yet but I am far more comfortable being a SKY investor than I was only 1 month ago, let alone 1 year ago.

So if market sentiment = risk assessment…

Shareholders currently buying around $2/share are taking less risk than a month ago when investors were buying at $1.50/share (adjusting for consolidation) because they signed one more contract out of hundreds?

I should also point out that after the HBO deal was signed the SP didn’t actually move very much. A little bump and then it fell again.

The SP only started to increase once Osmium declared their interest (and seem to have kept buying).

So I am dubious that the resent SP increase is anything to do with Mr Market’s sudden reassessment of Sky’s underlying business prospects at all.

Unless, of course, it was just that the market was overly pessimistic before and this is a mere correction of a previous error.

Either way, it is not a resounding argument for equating risk with movements in SP (volatility).

[winner69]

Either way, it is not a resounding argument for equating risk with movements in SP (volatility).

In some schools volatility is a measure of risk

[winner69]

Talking of risk I see Yahoo shows SKT Beta (5Y monthly) as 1


That’s interesting