Leading shares are edging lower on concerns about whether the Greek deal agreed after tortuous negotiations over the weekend will be approved by the country’s parliament.
But the dominant features so far are media companies.
Sky has soared 24p or more than 2% to £11.02 after analysts at Deutsche Bank moved their rating on the satellite broadcaster from hold to buy, and raised their price target by an eye-watering amount from £10 to £15.
The analysts said that far from disrupting Sky, the onset of online video opens up additional possibilities, with five new income streams:
Online video has arrived later-than-expected and is being driven by tablets and smartphones. The demand for mobility means the optimum infrastructure to deliver video is a complex mix of satellite, Wi-Fi and mobile networks. The economics of online video work for small, niche audiences, but not for mass audiences. So, far from being the online free-for-all predicted under ‘old’ convergence theory, barriers to entry in pay-TV are rising. Rights holders have not gone direct to consumers. Pay-TV operators’ position is becoming more valuable, not less.
Sky’s connected investment, ownership of fixed network assets, and launch of mobile services is set to pay off through (1) Incremental over-the-top subscriptions (2) The DVD market moving online, (3) Paid for mobility products, (4) Mobile launch (5) Targeted advertising. Meanwhile triple play growth has further to run. The core subscriber base is also showing increasing strength supporting price rises and modest sub growth. We raise estimates by 7%/11% for 2016/17.
Meanwhile it predicts a period of calm between Sky and BT, who have been battling over sports rights, notably football:
We are certainly not asserting a truce between BT and Sky. But there is window for the next 2-3 years in which Premier League, major sporting rights and studios contracts are locked down. In this period, the pay-TV and quad play market is going to grow significantly from the five new income streams we identify. This can more than offset Premier League inflation.
But if Deutsche has boosted Sky it had knocked back ITV. The bank’s analysts have moved from sell from hold, albeit with a target price raised from 205p to 220p.
The UK broadcasting market has been kind to ITV. Five has had its programming budget slashed and C4 has focused on its public service remit and lost its most commercial series. Not for much longer. Viacom’s takeover of Five is already showing improving audience share and we expect advertisers to follow, C4 could now be privatized and ITV’s weakness online is starting to tell. We find the upside case of retransmission fees, Liberty takeout and cash returns/dividends unconvincing. Meanwhile, five years into the management turnaround plan, ITV Studios’ organic growth rate has been disappointing and return on invested capital, on an acquisition-led strategy, modest.
ITV is down 3.2p at 273p.
Meanwhile publisher Pearson has fallen 18p to £12.32 after Kepler Cheuvreux cut its target price from £15 to £13.
Overall the FTSE 100 is down 5.13 points at 6732.82, with UK inflation slipping back to zero in June as expected.
Elsewhere defence and aerospace engineering group Meggitt is up 9.7p at 480.2p on talk of a possible strategic review and speculation about it being a bid target. Brenda Kelly, head analyst at London Capital Group, said:
Since March, the share price has fallen dramatically by some 23% but has seen some bargain hunting at the 450p level. Average broker target price is 540p. Rothschild, its financial adviser is said to be drawing up potential defence plans. Meggitt’s appointment of Sir Nigel Rudd as chairman in April stoked speculation that it could be a bid target. United Technologies and Honeywell are seen as being among the potential buyers.
Reports that a nuclear deal has been agreed in Vienna with Iran has pushed crude prices lower on the grounds that the country’s oil production will now flood onto an already over-supplied market.
BP is down 2.2p at 426.6p and commodity companies are also lower, with BHP Billiton 11p lower at £12.42.
But British Airways owner International Airlines Group is up 7p at 556p on hopes of cheaper fuel costs, a day after an upbeat note from analysts at UBS.
