SKT Sky Network Television Limited.

[DownTownJr]

From Zach VIC

Description
Sky has a mix of attractive attributes for value creation: a) 40% of market cap in cash b) dominant and only satellite provider with roughly 20% of the population New Zealand and 33-40% of NZ households as subscribers that watch 120 minutes a day c) tied up the key sports rights and spends nearly $330 million a year on content d) trades at sub 2x EV/EBITDA (adjusted for real estate sale/1H22 results) e) wildly overcapitalized with untapped line of $150 million + $160 million in cash* +/- vs. $400 million market cap f) decent business $740 million in revenue with $140 million in EBITDA or roughly 20% EBITDA margins and 10% free cash flow margins.

* Current cash $73 million + our estimates for 6-30-22: 1H22 $45 million from operations- capex + $55 million from real estate sale that closed in Feb 2022 or $173 million or 42% of the market cap!

We estimate that Sky could pay a special dividend equal 75% of the current share price or $1.80 per share by paying out the cash that is about to hit their books (re sale + fcf) + levering the untapped credit facility to 1.0x EBITDA. On a $2.40 stock with roughly .75+ cents in cash per share, the sell side has cash flow per share for 2022: .80 cents 2023: .75 cents and 2024 of .71 cents. Sky has laid out their growth plans which we think make sense. We believe the likely outcome will be a PE acquisition at a substantially higher price. Finally, we think there is very little downside in SKY and the opportunity for 100%+ upside or 5x EV/EBITDA. We believe Sky has barriers to entry in the form of dominant distribution for the country combined with tying up key sports rights that lead to good retention.

Plan to unlock shareholder value/catalysts:

We believe it is likely that a combination of a substantial dividend and large share repurchase is highly probable over the next 90 days or so. The company is hinting at roughly a 9-14% dividend which should begin in September 2022 (as the company will pay out 50-80% of free cash flow or .20-.32 cents a share, see page 28 of Feb 2022 IR deck). We see a couple paths a) a large dutch tender b) special dividend + stated ongoing dividend or c) holding cash with the above. We believe the most likely path is a large special dividend of up to 33% of the market cap or .75 cents could be paid out then followed with the above suggested payout of .20-.32 cent dividend. If this occurs post the special dividend, the payout would increase the dividend yield to 13-19% after backing out a one time special dividend. The company should be able to easily support both a large special dividend and ongoing dividend w/o much debt given the company has an untapped line of $150 million, $140 million in EBITDA, and a highly predictable subscription business. Sky is likely worth 5x EBITDA + Cash or roughly $5 per share vs. $2.40 per share.

Satellite is especially well suited for New Zealand given the topography and small regional towns make it costly and challenging to cover the entire country as Sky can.

Overall, the market is pricing in continuous declines in revenue and subscriber-base whilst the company has already returned to revenue growth. Unbundling has run its course (and/or has been oversold) and Sky is well positioned as it has strong distribution – e.g. even Disney, after testing unbundling, came back to Sky for their access to consumers. See this article written by Sky director in early May “How goes the Revolution” regarding unbundling and Sky’s market position:

https://www.linkedin.com/pulse/how-g...n-mike-darcey/

Sky motto “Home to Sport” and has the key sports rights to All Blacks rugby, premiere league soccer, cricket and others.

Home to Sport” is the motto, which is supported by Rugby, Premiere League Soccer, Cricket, etc rights. One of its main competitor in sports rights, Spark, has reduced its bids/fewer bids and rumors are it is maybe exiting sports: https://www.nzherald.co.nz/business/...INTRCXRVQRZ3Q/

Customers are increasingly sticky. 75% of subscriber have been customers for more than 5 years with churn decreasing every year, at 6.7% annually after 5years. Sky also offers broadband service (through a partner) to increase stickiness – the attachment rate is ~3-5% after first year of launch. On top of that, Sky is launching new hardware, Sky Box, in the next few months. The new Sky Box will allow streaming content beyond satellite and has Tivo-like functionality. Sky wants to maintain its preeminence with consumers – the first thing they turn on when viewing content.

Recent Developments:

There has been a lot of noise around SKY recently: A) A private equity bid B) considered the acquisition of Mediaworks from Oaktree (which with shareholder pushback was terminated) C) standalone with large dividend/buyback. B is OUT, A less likely and C) most likely. The dividend should be at least 12-15% starting in September.

The Mediaworks news caused the stock to tank – now that the transaction has been ruled out, the stock still hasn’t recovered fully, giving us another chance to buy.

CEO/Management;

We really like the CEO Sophie Maloney she took over about 18 months ago. She has done a strong job in cutting costs, sold real estate at an attractive point, set a growth path, launched an innovative new satellite box, bought stock in the open market, and negotiated compelling partnerships.

[RTM]

Thanks for posting this. Wow…if correct ! Hope it is.

From Zach VIC

Description
Sky has a mix of attractive attributes for value creation: a) 40% of market cap in cash b) dominant and only satellite provider with roughly 20% of the population New Zealand and 33-40% of NZ households as subscribers that watch 120 minutes a day c) tied up the key sports rights and spends nearly $330 million a year on content d) trades at sub 2x EV/EBITDA (adjusted for real estate sale/1H22 results) e) wildly overcapitalized with untapped line of $150 million + $160 million in cash* +/- vs. $400 million market cap f) decent business $740 million in revenue with $140 million in EBITDA or roughly 20% EBITDA margins and 10% free cash flow margins.

* Current cash $73 million + our estimates for 6-30-22: 1H22 $45 million from operations- capex + $55 million from real estate sale that closed in Feb 2022 or $173 million or 42% of the market cap!

We estimate that Sky could pay a special dividend equal 75% of the current share price or $1.80 per share by paying out the cash that is about to hit their books (re sale + fcf) + levering the untapped credit facility to 1.0x EBITDA. On a $2.40 stock with roughly .75+ cents in cash per share, the sell side has cash flow per share for 2022: .80 cents 2023: .75 cents and 2024 of .71 cents. Sky has laid out their growth plans which we think make sense. We believe the likely outcome will be a PE acquisition at a substantially higher price. Finally, we think there is very little downside in SKY and the opportunity for 100%+ upside or 5x EV/EBITDA. We believe Sky has barriers to entry in the form of dominant distribution for the country combined with tying up key sports rights that lead to good retention.

Plan to unlock shareholder value/catalysts:

We believe it is likely that a combination of a substantial dividend and large share repurchase is highly probable over the next 90 days or so. The company is hinting at roughly a 9-14% dividend which should begin in September 2022 (as the company will pay out 50-80% of free cash flow or .20-.32 cents a share, see page 28 of Feb 2022 IR deck). We see a couple paths a) a large dutch tender b) special dividend + stated ongoing dividend or c) holding cash with the above. We believe the most likely path is a large special dividend of up to 33% of the market cap or .75 cents could be paid out then followed with the above suggested payout of .20-.32 cent dividend. If this occurs post the special dividend, the payout would increase the dividend yield to 13-19% after backing out a one time special dividend. The company should be able to easily support both a large special dividend and ongoing dividend w/o much debt given the company has an untapped line of $150 million, $140 million in EBITDA, and a highly predictable subscription business. Sky is likely worth 5x EBITDA + Cash or roughly $5 per share vs. $2.40 per share.

Satellite is especially well suited for New Zealand given the topography and small regional towns make it costly and challenging to cover the entire country as Sky can.

Overall, the market is pricing in continuous declines in revenue and subscriber-base whilst the company has already returned to revenue growth. Unbundling has run its course (and/or has been oversold) and Sky is well positioned as it has strong distribution – e.g. even Disney, after testing unbundling, came back to Sky for their access to consumers. See this article written by Sky director in early May “How goes the Revolution” regarding unbundling and Sky’s market position:

https://www.linkedin.com/pulse/how-g...n-mike-darcey/

Sky motto “Home to Sport” and has the key sports rights to All Blacks rugby, premiere league soccer, cricket and others.

Home to Sport” is the motto, which is supported by Rugby, Premiere League Soccer, Cricket, etc rights. One of its main competitor in sports rights, Spark, has reduced its bids/fewer bids and rumors are it is maybe exiting sports: https://www.nzherald.co.nz/business/...INTRCXRVQRZ3Q/

Customers are increasingly sticky. 75% of subscriber have been customers for more than 5 years with churn decreasing every year, at 6.7% annually after 5years. Sky also offers broadband service (through a partner) to increase stickiness – the attachment rate is ~3-5% after first year of launch. On top of that, Sky is launching new hardware, Sky Box, in the next few months. The new Sky Box will allow streaming content beyond satellite and has Tivo-like functionality. Sky wants to maintain its preeminence with consumers – the first thing they turn on when viewing content.

Recent Developments:

There has been a lot of noise around SKY recently: A) A private equity bid B) considered the acquisition of Mediaworks from Oaktree (which with shareholder pushback was terminated) C) standalone with large dividend/buyback. B is OUT, A less likely and C) most likely. The dividend should be at least 12-15% starting in September.

The Mediaworks news caused the stock to tank – now that the transaction has been ruled out, the stock still hasn’t recovered fully, giving us another chance to buy.

CEO/Management;

We really like the CEO Sophie Maloney she took over about 18 months ago. She has done a strong job in cutting costs, sold real estate at an attractive point, set a growth path, launched an innovative new satellite box, bought stock in the open market, and negotiated compelling partnerships.

[Rustycage]

As much as I’d like a crapload of dividend, the leverage recap part is prob gonna be a bit optimistic/aggressive for our mgmt team ….

[mistaTea]

As much as I’d like a crapload of dividend, the leverage recap part is prob gonna be a bit optimistic/aggressive for our mgmt team ….

Agreed. I think Zach is right that it is possible...but I cannot see these guys paying out every dollar of cash on the books in September with a view to tapping into the lending facilities to support future spend.

I do think we should expect a very generous divvy/special divvy combo though. If cash balance ends up being closer to the $170M mark then it would be hard for Sky to justify paying out any less than $100M in September I think.

[mistaTea]

https://www.nzherald.co.nz/business/...S3374SL3TU23Y/

A bit of a spiel on whether or not Spark might offload Spark Sport. Jarden have been speculating on an exit for some time and it certainly doesn't seem like they are going for the throat anymore to win sports deals.

If they are negotiating an exit, I cannot see anyone being interested in a deal apart from Sky.

Spark has billions of dollars of revenue and couldn't make it work. Just passing the buck to another big company won't make Spark Sport earn any money any time soon.

A more realistic scenario imo is for them to do a negotiated exit whereby Sky take the cricket off their hands. Spark might have to eat some of the cost given they inflated the rights so much.

We don't need their platform (despite Chris' poor attempt to drum up some negative 'news') so don't see why we would pay them anything for that.

Most likely, they will have little to say about Spark at the FY results release though. Still a waiting game.

[Vitamin_A]

D-Day Eve!
What's your pick re, capital distribution?
I'm picking 30c.p.s fully imputed vanilla dividend.
Super conservative and keeps the company still over capitalized.

[bull....]

From Zach VIC

Description
Sky has a mix of attractive attributes for value creation: a) 40% of market cap in cash b) dominant and only satellite provider with roughly 20% of the population New Zealand and 33-40% of NZ households as subscribers that watch 120 minutes a day c) tied up the key sports rights and spends nearly $330 million a year on content d) trades at sub 2x EV/EBITDA (adjusted for real estate sale/1H22 results) e) wildly overcapitalized with untapped line of $150 million + $160 million in cash* +/- vs. $400 million market cap f) decent business $740 million in revenue with $140 million in EBITDA or roughly 20% EBITDA margins and 10% free cash flow margins.

* Current cash $73 million + our estimates for 6-30-22: 1H22 $45 million from operations- capex + $55 million from real estate sale that closed in Feb 2022 or $173 million or 42% of the market cap!

We estimate that Sky could pay a special dividend equal 75% of the current share price or $1.80 per share by paying out the cash that is about to hit their books (re sale + fcf) + levering the untapped credit facility to 1.0x EBITDA. On a $2.40 stock with roughly .75+ cents in cash per share, the sell side has cash flow per share for 2022: .80 cents 2023: .75 cents and 2024 of .71 cents. Sky has laid out their growth plans which we think make sense. We believe the likely outcome will be a PE acquisition at a substantially higher price. Finally, we think there is very little downside in SKY and the opportunity for 100%+ upside or 5x EV/EBITDA. We believe Sky has barriers to entry in the form of dominant distribution for the country combined with tying up key sports rights that lead to good retention.

Plan to unlock shareholder value/catalysts:

We believe it is likely that a combination of a substantial dividend and large share repurchase is highly probable over the next 90 days or so. The company is hinting at roughly a 9-14% dividend which should begin in September 2022 (as the company will pay out 50-80% of free cash flow or .20-.32 cents a share, see page 28 of Feb 2022 IR deck). We see a couple paths a) a large dutch tender b) special dividend + stated ongoing dividend or c) holding cash with the above. We believe the most likely path is a large special dividend of up to 33% of the market cap or .75 cents could be paid out then followed with the above suggested payout of .20-.32 cent dividend. If this occurs post the special dividend, the payout would increase the dividend yield to 13-19% after backing out a one time special dividend. The company should be able to easily support both a large special dividend and ongoing dividend w/o much debt given the company has an untapped line of $150 million, $140 million in EBITDA, and a highly predictable subscription business. Sky is likely worth 5x EBITDA + Cash or roughly $5 per share vs. $2.40 per share.

Satellite is especially well suited for New Zealand given the topography and small regional towns make it costly and challenging to cover the entire country as Sky can.

Overall, the market is pricing in continuous declines in revenue and subscriber-base whilst the company has already returned to revenue growth. Unbundling has run its course (and/or has been oversold) and Sky is well positioned as it has strong distribution – e.g. even Disney, after testing unbundling, came back to Sky for their access to consumers. See this article written by Sky director in early May “How goes the Revolution” regarding unbundling and Sky’s market position:

https://www.linkedin.com/pulse/how-g...n-mike-darcey/

Sky motto “Home to Sport” and has the key sports rights to All Blacks rugby, premiere league soccer, cricket and others.

Home to Sport” is the motto, which is supported by Rugby, Premiere League Soccer, Cricket, etc rights. One of its main competitor in sports rights, Spark, has reduced its bids/fewer bids and rumors are it is maybe exiting sports: https://www.nzherald.co.nz/business/...INTRCXRVQRZ3Q/

Customers are increasingly sticky. 75% of subscriber have been customers for more than 5 years with churn decreasing every year, at 6.7% annually after 5years. Sky also offers broadband service (through a partner) to increase stickiness – the attachment rate is ~3-5% after first year of launch. On top of that, Sky is launching new hardware, Sky Box, in the next few months. The new Sky Box will allow streaming content beyond satellite and has Tivo-like functionality. Sky wants to maintain its preeminence with consumers – the first thing they turn on when viewing content.

Recent Developments:

There has been a lot of noise around SKY recently: A) A private equity bid B) considered the acquisition of Mediaworks from Oaktree (which with shareholder pushback was terminated) C) standalone with large dividend/buyback. B is OUT, A less likely and C) most likely. The dividend should be at least 12-15% starting in September.

The Mediaworks news caused the stock to tank – now that the transaction has been ruled out, the stock still hasn’t recovered fully, giving us another chance to buy.

CEO/Management;

We really like the CEO Sophie Maloney she took over about 18 months ago. She has done a strong job in cutting costs, sold real estate at an attractive point, set a growth path, launched an innovative new satellite box, bought stock in the open market, and negotiated compelling partnerships.

think you missed the main threat off content providers leaving sky.... take for example the lastest hbo ... thats why it will always trade at a discount because of the risk.

A streaming service full of HBO content is coming to New Zealand whether Sky likes it or not

https://www.stuff.co.nz/entertainmen...ikes-it-or-not


I think share buybacks and div's anyway is what they do with the need to conserve cash for ever increasing costs of content

[mistaTea]

think you missed the main threat off content providers leaving sky.... take for example the lastest hbo ... thats why it will always trade at a discount because of the risk.

A streaming service full of HBO content is coming to New Zealand whether Sky likes it or not

https://www.stuff.co.nz/entertainmen...ikes-it-or-not


I think share buybacks and div's anyway is what they do with the need to conserve cash for ever increasing costs of content

Shame man, I think the article he shared from Mike Darcy addresses the issue about content providers leaving.

[Balance]

D-Day Eve!
What's your pick re, capital distribution?
I'm picking 30c.p.s fully imputed vanilla dividend.
Super conservative and keeps the company still over capitalized.

In which case you could be most disappointed if market consensus from 6 analysts is any guide :

https://www.marketscreener.com/quote...39/financials/

Expectations are for a 9cps dividend.

[bull....]

Shame man, I think the article he shared from Mike Darcy addresses the issue about content providers leaving.

thats the uncertainty of being at the mercy of content providers they may only need you till they dont