SKT Sky Network Television Limited.

[mistaTea]

Just digging out some of the commentary from Sky regarding their debt...

As part of this growth plan, the Directors are also currently reviewing the funding structure of the Group given the investments required under the transformation programme and maturity of the $100 million bond in March 2021. The current bank facility expires in July 2022 with a stepdown in the bank facility from $200 million to $150 million by July 2021 (refer Note 7).

There has been talk of a discounted rights issue, but that would be the least favourable option in my view. Sky would need to raise at least $100M to clear the bonds for it to make any kind of sense. So, say a 1:1 discounted issue @25c/share raises ~ $109M.

Assuming they did not want to be diluted by half, NZRU would need to pony up ~$5.5M.

RugbyPass Investors LLC would need to pony up ~$6.3M.

I doubt very much either of those two major investors are in a position to come up with that kind of dough. And I do not think they would be very happy either with their holdings being diluted so savagely. Time will tell if I am wrong, but I will admit now that it would shock me and come as an unpleasant surprise.

Given the cheap money available, I still think a better approach is to review the funding structure to borrow more money on more favourable terms. Clearly Sky need more money to fund their ambitions, it's just a matter of how and with who.

Current debt accounts for ~27% of Revenue. When you look at NETFLIX, their borrowings account for more like 75% of Revenue. Now, I am not suggesting we should borrow like crazy in the way that NETFLIX has...but I think Sky can comfortably increase borrowing capacity whilst still being financially prudent. If that can't be achieved by issuing new bonds and/or negotiating better terms with The Australian banks, then look further abroad. In this climate I don't think it would be too difficult at all to find large financial institutions willing to loan money. And we wouldn't be paying a 6.25% yield either like we are with the bonds issued in 2014.

Going Concerns very rarely actually pay off their debt (which is what we would be attempting to do, at least in part, with a capital raise) - it's usually more a case of restructuring the borrowings as the facilities come due.

[blackcap]

Just digging out some of the commentary from Sky regarding their debt...

As part of this growth plan, the Directors are also currently reviewing the funding structure of the Group given the investments required under the transformation programme and maturity of the $100 million bond in March 2021. The current bank facility expires in July 2022 with a stepdown in the bank facility from $200 million to $150 million by July 2021 (refer Note 7).

There has been talk of a discounted rights issue, but that would be the least favourable option in my view. Sky would need to raise at least $100M to clear the bonds for it to make any kind of sense. So, say a 1:1 discounted issue @25c/share raises ~ $109M.

Assuming they did not want to be diluted by half, NZRU would need to pony up ~$5.5M.

RugbyPass Investors LLC would need to pony up ~$6.3M.

I doubt very much either of those two major investors are in a position to come up with that kind of dough. And I do not think they would be very happy either with their holdings being diluted so savagely. Time will tell if I am wrong, but I will admit now that it would shock me and come as an unpleasant surprise.

Given the cheap money available, I still think a better approach is to review the funding structure to borrow more money on more favourable terms. Clearly Sky need more money to fund their ambitions, it's just a matter of how and with who.

Current debt accounts for ~27% of Revenue. When you look at NETFLIX, their borrowings account for more like 75% of Revenue. Now, I am not suggesting we should borrow like crazy in the way that NETFLIX has...but I think Sky can comfortably increase borrowing capacity whilst still being financially prudent. If that can't be achieved by issuing new bonds and/or negotiating better terms with The Australian banks, then look further abroad. In this climate I don't think it would be too difficult at all to find large financial institutions willing to loan money. And we wouldn't be paying a 6.25% yield either like we are with the bonds issued in 2014.

I like your reasoning but markets are what markets are. Sky would have to pay a yield of 40% if they were going to borrow the money. Why invest in SKY debt at lower yield when you can get 40% in the market currently? (ok they have been trading on low volumes but if SKY tried to borrow at 6.25% they would be laughed out of the room) I like your optimism and share your enthusiasm about SKY as I too am a shareholder but I have been in this game long enough to know that markets are more often right than wrong. If SKY were going to borrow, they would have to have a pretty compelling case and I am not sure it gets over the line under current metrics. Lets hope that markets have this one wrong.

[mistaTea]

I like your reasoning but markets are what markets are. Sky would have to pay a yield of 40% if they were going to borrow the money. Why invest in SKY debt at lower yield when you can get 40% in the market currently? (ok they have been trading on low volumes but if SKY tried to borrow at 6.25% they would be laughed out of the room) I like your optimism and share your enthusiasm about SKY as I too am a shareholder but I have been in this game long enough to know that markets are more often right than wrong. If SKY were going to borrow, they would have to have a pretty compelling case and I am not sure it gets over the line under current metrics. Lets hope that markets have this one wrong.

I think the current 40% yield is not that much of an issue - as you say volumes are incredibly low. So though on the surface the 40% looks great, in reality you cannot buy meaningful amounts of the bonds as an investment (at that yield anyway). Before the recent fear and accompanying spike up to 80%, I think they were trading at a yield of 3.5% or less.

The bigger challenge for Sky in terms of restructuring borrowings will be the low market capitalisation. Even though the ability to borrow should ideally be based on underlying earning power, future prospect etc... Market Cap is a variable that fits into the lending equation.

The other reference point is GAAP earnings, which we know is usually ~$50M less than underlying earnings due to the large depreciation cost they are able to charge. Not including one-off large charges like acquisition costs and Goodwill write downs, of course.

I tend to agree that 'the market' is usually right in the long run. I think Ben Graham stated that in the short-medium term it is a voting machine, but in the long term it is a weighing machine.

[winner69]

I think the current 40% yield is not that much of an issue - as you say volumes are incredibly low. So though on the surface the 40% looks great, in reality you cannot buy meaningful amounts of the bonds as an investment (at that yield anyway). Before the recent fear and accompanying spike up to 80%, I think they were trading at a yield of 3.5% or less.

The bigger challenge for Sky in terms of restructuring borrowings will be the low market capitalisation. Even though the ability to borrow should ideally be based on underlying earning power, future prospect etc... Market Cap is a variable that fits into the lending equation.

The other reference point is GAAP earnings, which we know is usually ~$50M less than underlying earnings due to the large depreciation cost they are able to charge. Not including one-off large charges like acquisition costs and Goodwill write downs, of course.

I tend to agree that 'the market' is usually right in the long run. I think Ben Graham stated that in the short-medium term it is a voting machine, but in the long term it is a weighing machine.

Maybe the market has given up voting and weighed everything up and the scales read what SKY is really only worth what it is today.

[mistaTea]

Maybe the market has given up voting and weighed everything up and the scales read what SKY is really only worth what it is today.

That is a possibility.

I suppose it would mean that very recently the market was ‘wrong’ @19c though and we can be much more confident now @28c that the market is definitely ‘right’.

Before COVID the price was up around 70c. Christ Almighty, the market couldn’t have been more wrong back then! Sky TV was much more of a piece of sh1t than the market gave it credit for until, fortunately, we were hit my a global pandemic which hasn’t really affected Sky’s earnings - but at least gave the market a wake up call to finally look properly and get the value ‘right’.

In fact, if you were to look at the Market Value of Sky TV over the last 2 years, you would have to say that the market has got it wrong at every turn.

The underlying 'story' for the business has not really changed much over this short period...in fact, Sky have returned to positive subscriber growth sooner than anticipated. Underlying Earnings are falling roughly at the rate assumed due to satellite sub losses, increased content costs etc. Meanwhile management are making the investments in streaming that they said they would.

Yet if you looked at what Mr Market has had to say over the last 2 years, and view the market's assessment as the true value of Sky...well then:

- The Market was wrong @ $2.80
- The Market was wrong @ $2.00
- The Market was wrong @ $1.50
- The Market was wrong @ $1.10
- The Market was wrong @ 85c
- The Market was wrong when it bounced back to $1.10 three days later
- The Market was wrong @70c
- The Market was wrong @30c
- The Market was wrong @ 19c
- But we should definitely believe the market has it 'about right' @28c?

With a company at the early stages of a transformation program like Sky TV, I personally find it hard to glean anything meaningful from the market gyrations in terms of intrinsic value.

[Ogg]

Looks like Nine Network is asking for a discount on the shorten NRL season.

https://www.smh.com.au/sport/nrl/nrl-braces-for-60m-shortfall-as-broadcasters-eye-discount-20200429-p54oe5.html

Will Sky ask for compensation too?

[mistaTea]

Looks like Nine Network is asking for a discount on the shorten NRL season.

https://www.smh.com.au/sport/nrl/nrl-braces-for-60m-shortfall-as-broadcasters-eye-discount-20200429-p54oe5.html

Will Sky ask for compensation too?

Will be interesting to see what Sky do here. I believe they are well within their rights to withhold some of the payment.

But is that the smart thing to do? Depending on how this plays out Sky may have no choice but to reduce the payment.

Alternatively they could keep making the full payments but look for some other kind of long term benefit - like a guarantee of renewal on more favourable terms.

We scratch your back, now you scratch ours.

I would prefer the latter if it is possible.

[Entrep]

That is a possibility.

I suppose it would mean that very recently the market was ‘wrong’ @19c though and we can be much more confident now @28c that the market is definitely ‘right’.

Before COVID the price was up around 70c. Christ Almighty, the market couldn’t have been more wrong back then! Sky TV was much more of a piece of sh1t than the market gave it credit for until, fortunately, we were hit my a global pandemic which hasn’t really affected Sky’s earnings - but at least gave the market a wake up call to finally look properly and get the value ‘right’.

In fact, if you were to look at the Market Value of Sky TV over the last 2 years, you would have to say that the market has got it wrong at every turn.

The underlying 'story' for the business has not really changed much over this short period...in fact, Sky have returned to positive subscriber growth sooner than anticipated. Underlying Earnings are falling roughly at the rate assumed due to satellite sub losses, increased content costs etc. Meanwhile management are making the investments in streaming that they said they would.

Yet if you looked at what Mr Market has had to say over the last 2 years, and view the market's assessment as the true value of Sky...well then:

- The Market was wrong @ $2.80
- The Market was wrong @ $2.00
- The Market was wrong @ $1.50
- The Market was wrong @ $1.10
- The Market was wrong @ 85c
- The Market was wrong when it bounced back to $1.10 three days later
- The Market was wrong @70c
- The Market was wrong @30c
- The Market was wrong @ 19c
- But we should definitely believe the market has it 'about right' @28c?

With a company at the early stages of a transformation program like Sky TV, I personally find it hard to glean anything meaningful from the market gyrations in terms of intrinsic value.

Are you saying that because the price changes at all - even 1c - the market is wrong? Not to mention there are 3rd party, macro,virus, actions of Sky themselves that no one can know. The market reacts to all that when it processes it and the trend is clearly down.

[mistaTea]

Are you saying that because the price changes at all - even 1c - the market is wrong?

I don’t believe I said that at all.

The ‘market’ is able to react to all sorts of things that nobody can know?!

Amazing 😍

[Entrep]

I don’t believe I said that at all.

The ‘market’ is able to react to all sorts of things that nobody can know?!

Amazing ��

Your misquote of me is actually what you said. Amazing indeed!