Sky strong but subscriber growth 'disappointing'

Sky Network Television, New Zealand's dominant pay-TV company, reported strong operating and underlying profitability but revenue and subscriber growth was disappointing, Craigs Investment Partners broker Greg Easton said.

''This result was very strong and shows the strength of Sky TV's current position.

"All that being said, the maturity in the business' top-line growth drivers was evident and a lack of subscriber growth is disappointing.''

Earnings before interest, tax, depreciation and amortisation rose 7.3% in the year ended June to $379 million from $353.1 million in the previous corresponding period.

Revenue grew by 2.7% to $904 million from $885 million and the reported profit was up 21% to $165.8 million.

Sky, which is in almost half New Zealand's households, lifted its annual profit for a fifth consecutive year as it garnered more fees from an increasing number of subscribers.

More of them were moving on to its higher-value My Sky service.

The company added a net 9157 subscribers in the year through June, taking its total to 865,055.

The number of residential subscribers, who account for about 82% of the total, rose 3.5% while wholesale subscribers fell 15%, as customers who previously received the service through Telecom, now called Spark, transferred to Sky after the companies ended a wholesale agreement.

Average monthly revenue per subscriber rose 2.2% to $77.52 from the year earlier.

Average revenue from My Sky users rose 0.4% to $87.22 a month.

However, Mr Easton said core pay-TV growth was only 4000 subscribers when Craigs was expecting 8000.

''This is very disappointing, given the positive state of the economy and a reasonable period of benign subs growth.''

A second-half dividend of 15 cents per share took the total dividend to 20cps.

There was no change to the payout policy, despite very strong reported profit growth of 21% and strong free cash flow of $210 million.

Some investors would probably be disappointed with no change in dividend paying.

At 29cps, the shares were trading on a 4.5% net yield, albeit on a low payout ratio.

Capital expenditure was $93 million, up slightly on the year before but well below the long-term average, he said.

Mr Easton warned Sky's programming costs would grow again this financial year.

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