Shore Cap reiterates 'buy' on Sky after German Bundesliga TV deal

Shore Capital on Friday reiterated its ‘buy’ rating and target price of 955p on Sky after the broadcaster secured the lion’s share of TV rights to German Bundesliga football matches for €3.5bn.

Sky is paying €876m per year in the four-year deal with the German Professional Football Association. The group is forking out 80% more than its existing €486m deal and has been forced to give up some of its rights to rival Eurosport.

“Market consensus was for a 40-80% uplift making a midpoint of €778m, so this settlement is at the top of this range,” ShoreCap analyst Roddy Davidson said.

“That said, we regard this as an acceptable cost in light of the company’s assertion that it can be accommodated within current consensus forecasts (we are mid-range at the adjusted pre-tax profit level for the current year, and fiscal years 2017 and 2018), and in view of both its track record of driving revenue growth from a broad range of sports rights (e.g. 12% compound annual growth rate across its current Bundesliga contact), and fears that increased competition could have resulted in a more costly settlement and / or a less comprehensive package.”

Davidson added that the Bundesliga deal is a key element of Sky Deutschland’s proposition to German consumers.

Coupled with the expansion of Sky’s content base and the introduction of new features and services - including connected and on-demand services, box sets and exclusive entertainment programming –Shorecap believes the deal should “drive customer and revenue growth in this potentially large, but currently relatively immature pay TV market”.

Shares fell 1.05% to 945p at 0915 BST, reversing the previous day’s rise following the announcement of the deal.