Morgan Stanley ups Sky to 'overweight', says it's oversold

Morgan Stanley upgraded Sky to ‘overweight’ from ‘equalweight’ but cut the price target to 1,000p from 1,025p saying the stock was oversold.

It noted that structural fears have pushed the shares down 25% year-to-date so that it now trades at about 9% of estimated 2018 free cash flow yield and its decade-long price-to-earnings relative.

It said the structural negative story dominates, with the argument being that Sky’s satellite TV distribution model has been outflanked by over-the-top, allowing new entrants such as Netflix and Amazon Prime into the market.

MS pointed out that despite this, Sky has grown pro-forma revenues in the last two years by 5% per annum, earnings before interest and amortisation by 8% and earnings per share by 5%.

The bank said news flow for the group may start to improve, starting with the capital markets day on 22 October.

“After the down year in FY17, we forecast 13% per annum EPS growth FY17-21 as Sky pursues its long-term target of 100p of EPS.”

At 0840 BST, Sky shares were up 2.9% to 864.50p.