THE sell-off in BSkyB continued apace yesterday, as arbitrage traders piled out of the stock faster than you could shout “the deal is off”. The satellite broadcaster is still a brilliant company, however – one of Britain’s best: bargain hunters should take note.
Analysts at Citi point out that BSkyB was trading at 600p a share before Murdoch made his bid around a year ago. Add in the 20 per cent gain in the FTSE over the last year along with Sky’s outperforming earnings (worth another 15 per cent) and Sky should trade at 810p.
That’s before you consider that the firm is about to start throwing off huge amounts of cash, now that it is exiting an investment-heavy period. There is a reason that Murdoch was so keen to get his hands on the rest of the company.
Goldman was also among the bulls, saying yesterday’s close price of 715p was an “attractive” point at which to buy the stock. It expects the broadcaster to deliver high single-digit revenue growth and a 160 basis points increase in ebitda margins in financial year 2012, leading to strong cash flow generation and 26 per cent earnings per share growth.
However, as evidenced by the staggering events of the last few days, these are unpredictable times: bargain hunters should take care. One rumour doing the rounds is that News Corp could be forced to sell its 39 per cent stake if Ofcom deems it is neither a fit nor proper owner of a broadcaster (which would see the share price tank even further). We think that’s unlikely, but it serves to show that this stock is not without its risks.