Sky boosted by Kepler Cheuvreux upgrade

The bank noted the stock has dropped by 23% in absolute terms and 20% relative to the sector year-to-date, making it one of the most de-rated European media stocks in 2016, with only highly cyclical stocks such as ITV and Mediaset performing worse.

Kepler said the shares have been hit by two main issues, the first of which is the ongoing perception that its addressable market is shrinking. The second is further runaway cost inflation generated by the Bundesliga rights tender.

“Sky is poised to continue generating broad-based revenue growth of 5-7% until the end of the decade, which is above its European Media peers (circa 3%), and we are at the onset of a potential two-year hiatus in major sports rights tender risks.

“Despite this, a sharp de-rating year-to-date…leaves the group at a 45% discount to its historical average, and 75-85% to pay-TV transaction ratios, such as the EV/subscribers ratio, which best captures the upside potential of low-margin Sky Europe.”

Kepler said innovation and technology are allowing Sky to continue to grow its revenue by above-average rates thanks to a broad-based combination of new subscribers, increased product take-up from the existing base, price increases, share gains in advertising and content sales.

At 1045 BST, Sky shares were up 1.4% to 846.31p.