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