Sky Network Television Ltd

SKT Details

Sky Network Television Ltd (ASX: SKT) is engaged in providing a span of streaming content under one umbrella, both on the big screen via satellite and devices with Neon or Sky Go. The company owns over 70 satellite channels and 12 dedicated sports channels and streams, among other offerings.

Result Performance – For the Financial Year Ended 30 June 2021 – (FY21)

• Fall in Revenue: Revenue for the period stood at $711.2 million, down 4.7% YoY, primarily due to a fall in total subscription revenue by 5.6% YoY to $649.1 million, followed by a fall in advertising revenue by 0.7% YoY to $44.9 million.
• Reported EBITDA stood at $186.4 million in FY21 versus $164.2 million in FY20, and adjusted EBITDA stood at $185.9 million in FY21 versus $192.4 million in FY20.
• The reported profit after tax stood at $47.5 million, versus a loss of $156.8 million in FY20. On an adjusted basis, net profit after tax stood at $47.1 million compared to an adjusted net profit of $41.0 million in FY20.

Financial Snapshot (Source: Company Report)

Recent Update

• As per the release dated 27 August 2021, the company and WarnerMedia have come together to expand and extend their long-established business agreement, announcing a major multi-year deal that will provide customers accessibility of programs across core brands like Warner Bros., HBO, DC, and WarnerMedia Networks as well as premium content from HBO Max.

Outlook

As per the management, the company is at an inflection point with a clear strategy and more of the rights that matter to customers. In FY22, the company plans to focus on managing operating costs and achieve sustained efficiency gains. Having achieved a net $15 million of annualized savings in the last two years, the company targets a minimum of $10-$15 million per annum of further non-programming cost savings by FY24.

Guidance for FY22: The company aims to be profitable and continue to generate positive free cash flow. Revenue guidance is expected to be in the range of $715-$745 million, which indicates that the company expects to boost the top line and expects to generate EBITDA of $115-$130 million and NPAT of $17.5-$27.5 million in FY22.

Key Risks

SKT is susceptible to market risks such as currency risk, fair value interest rate risk, cash flow interest rate risk, and price risk along with credit risk and liquidity risk. The company uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Stock Recommendation

The stock has made a 52-week low and high of $0.125 and $0.185, respectively and is currently trading above the average of 52-week high-low range.

The stock has been valued using a P/E multiple based illustrative relative valuation method and arrived at a target price which reflects a decline of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ median, considering a fall in revenue in FY21 and a longer cash conversion cycle at 40.21days in FY21 versus 35.26 days in FY20.

Considering the aforesaid facts, current trading level, and risks associated, we suggest investors to liquidate the stock.

Hence, we give a “Sell” recommendation on the stock at the current market price of $0.170 per share, (Time: 1:13 PM (GMT+10), Sydney, Australia) on 30^th August 2021.

Daily Technical Chart

Source: REFINITIV, The black color line in the chart depicts RSI (14-period). The green and red color lines show 21-Period SMA and 50-Period SMA respectively, while blue color histograms at the bottom of charts represent volumes. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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